Author: Warren Gilmore – Law Student
Edited By: Ryan Carson
In 2017, the province of Ontario implemented a specific tax on foreign real estate buyers, the Non-Resident Speculation Tax. The tax works to impose greater financial burdens on foreign real estate purchasers, providing for a tax rate of 15% in addition to the purchase price of residential property. The tax applies specifically to residential properties located in the Golden Horseshoe area, effective as of April 21, 2017. Agreements of Purchase and Sale that were signed prior to this date, and that were not assigned to another party after this date, are not subject to the Non-Resident Speculation Tax.
The tax is intended to deter foreign buyers from purchasing residential property in an effort to moderate the skyrocketing housing market in the Golden Horseshoe area. Foreign investors have long found the housing market in these areas of Ontario to be a safe and attractive place to invest their foreign dollars. This practice has caused the value of homes in these areas to inflate, somewhat artificially. As a result, residential property in these areas are often out of reach for the everyday local residents of these communities. The Non-Resident Speculation Tax helps to relevel the playing field, and works to moderate residential real estate prices, making them more affordable for local residents.
The Non-Resident Speculation Tax is applied to foreign buyers, any individuals who are neither Canadian Citizens, nor Permanent Residents. The tax is also applicable to foreign corporations, those with corporate nerve centers outside of Canada.
Taxable trustees are also subject to the Non-Resident Speculation Tax. This typically includes trusts which have one or more trustees considered to be a foreign entity, or if the direct beneficiary of a trust is an individual considered to be a foreign entity.
However, purchasers who have been subject to this tax may be entitled to a rebate in the instance that they meet particular exempting conditions provided for in the legislation. These exemptions include:
If the buyer within 4 years of the real estate purchase closing date, becomes a Canadian Citizen or a Permanent Resident.
If the buyer is also a full-time student at an educational institution, at a campus located in Ontario for at least 2 years.
If the buyer has been legally employed in Canada for a least 1 year.
Individuals applying for one of these exceptions are also required to abide by the following conditions:
The buyer must hold title to the subject property either exclusively, or exclusively between themselves and a spouse.
The buyer is required to occupy the subject property as their primary resident for a minimum of 60 days beyond the closing date of the transaction.
The buyer must submit their application for an exception rebate no longer than 4 years after the closing date of the transaction.
The Non-Resident Speculation Tax may even have an effect on Canadian citizens in certain respects. If residential real estate is purchased through a partnership, where one of the partners is considered a foreign entity, the entire purchase will still be subject to the 15% tax. The tax is not imposed proportionality to the particular interest held by the foreign entity. In other words, if any member of a partnership is without an exemption to the tax, the tax will be fully applicable to the entire transaction.
Should you find yourself in a situation where the prospective purchase of residential property may be subject to the Non-Resident Speculation Tax, it is imperative that you meet with a lawyer to determine your potential eligibility for any of these exemptions. At Carson Law we can help you navigate these concerns, in part of an overall plan to best protect your interests.
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