NRST - Non Resident Speculation Tax
NRST got introduced on April 21, 2017, by the Ontario government. It is a new Foreign Home Buyer Tax – otherwise known as the Non-Resident Speculation Tax nrst. It is also referred to as non resident speculation tax NRST or Speculation and vacancy tax.
This speculation and vacancy tax apply to all real estate transaction which is controlled directly or indirectly by foreigners ie. non residents being settled with a closing date of April 21 2017, or later.
Any incorporation which holds the property exclusively for non residents is subject to the nrst.
The tax is primarily intended to limit speculative real estate investment from foreign buyers or foreign corporations. It is currently restricted to real estate within the greater Toronto area particularly the Greater Golden Horseshoe region.
The NRST is speculation and vacancy tax calculated as 15 % of the purchase price of the property as set out in the Agreement of Purchase and Sale. If the NRST applies to you, you must pay both the NRST and any applicable land transfer tax
The tax only applies to transactions closing on or after April 21, 2017. This means binding agreements signed on or before April 20, 2017 will not be subject to the tax (i.e. there will be a grandfathering clause).
This tax is due on the closing date of the transaction.
Initially the tax was being collected by buyers (or their lawyers) pre-paying the tax prior to closing at the Ministry of Finance office in Oshawa (by Certified cheque or lawyer’s trust account cheque).
After the initial period, the tax will be collected just like Land Transfer Taxes – i.e. it will be electronically withdrawn from the lawyer’s account upon registration of the Transfer/Deed.
New statements have been introduced into Transfers/Deeds for lawyers, requiring confirmation prior to registering the Transfer/Deed as to whether or not the NRST tax is applicable to the transfer that is being registered.
The NRST only applies to relevant conveyances of “designated land”. That is, it applies only to land containing “at least one and not more than six family residences” in the “Greater Golden Horseshoe” (“GGH”), a specific region of Ontario surrounding Toronto.
What is The Purpose of (NRST) Non-Resident Speculation Tax?
The NRST is primarily intended to:
- Avoid a potential housing crisis by discouraging foreigners to buy and not occupy the property speculative real estate investment.
- Normalize home valuations and affordability; and limit the sudden rising of real estate prices which, in many respects, are not considered to be reflective of the “true” value of the property/asset.
- In its current form, application of the NRST does not appear to reflect a motive to raise revenue, as the taxes are intended solely for foreign buyers.
Speculation can lead to serious fallout within the real estate industry, including potentially undesirable and/or unsustainable market swings and volatility.
This can disorient the true value of the property, and if left uncontrolled can cause a housing catastrophe as in the past, speculative buying/selling has created an imbalance
In supply and demand.
Will I Be Impacted By The NRST If I Am a Foreign Entity?
Generally, NRST is payable by Foreign Nationals who do not meet an exemption. In most situations, Canadian citizens and Permanent Residents of Canada are exempt from this tax.
However, if you are a Canadian citizen, Permanent Resident or a Foreign National who meets an exemption but acquires an interest in a property with a Foreign Nationals, Foreign corporations who do not occupy the property, you are subject to NRST.
NRST applies when exempt Canadian citizen, permanent resident purchase or acquisition of single family residences or even hold the property exclusively for a foreign buyer.
Will NRST Apply If I Am a Non Resident Individual or Corporation?
Yes, you could be impacted by NRST if you are Non-resident individuals and corporations which are either:
- Not incorporated in Canada
- Or Controlled by a foreign national as per section 256 of the Income Tax Act
NRST could impact you if you are:
- A taxable trustee (with at least one foreign entity or a beneficiary who is a foreign entity) who is engaged in receiving real estate either via a transfer or acquisition.
Do note that some exclusions apply, and an occupancy test may be required to be considered an excluded individual – if you are the purchaser, you must occupy the property as a principal residence.
What Are The Areas Where this tax Is Applicable?
The new tax is applicable for residential property that is located within the Greater Golden Horseshoe area.
It includes Toronto, Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha, Niagara, Northumberland, Peel, Peterborough, Simcoe, Waterloo, Wellington, and York.
it is important to know that the mortgage stress test applies to all purchases when arranging a mortgage with a federally regulated bank in Canada.
Check out how to search and select a mortgage broker Toronto.
What Type of Properties Are Subject To Speculation Tax?
The NRST applies to the purchasing of land which contains one to six single family residences. Examples of land containing one single family residence include:
- A Detached House
- A Semi-Detached House
- A Townhouse
- A Condominium Unit
In a situation involving the purchase of multiple condominium units, each unit would be considered land containing one single family residence, for example, duplexes, triplexes, fourplexes, fiveplexes, and sixplexes.
The NRST does not apply to multi‑residential rental apartment buildings with more than six units, agricultural land, commercial land, or industrial land.
If the land includes both residential property and another type of property, the NRST applies only on the portion of the price attributable to the residential property.
Yes, there are exemptions from the NRST available to a foreign national:
- Who is a Canadian citizen or permanent resident of Canada
- Who jointly purchases residential property with a spouse – provided the spouse
is a Canadian citizen or permanent resident of Canada - Foreign nationals or spouses of those who qualify for the exemption as “nominee”
- Designated “Refugee” under the Ontario Immigrant Nominee Program
- Or Immigration and Refugee Protection Act at the time of the purchase.
As A Foreign National, Can I Avail Of Any Rebates On The NRST?
A rebate may be available if the foreign national:
- Becomes a permanent resident of Canada within four years of the date of the purchase
- Is a student enrolled full-time for at least two years from the date of purchase in an “approved institution”
- Or has legally worked full-time in Ontario for a continuous period of one year since the date of purchase or acquisition.
The rebate will be paid with interest, calculated at the prescribed refund rate under the Land Transfer Tax Act*.
Please note that you may need to provide supporting documentation to substantiate all applications for rebates.
Are there any penalties for tax avoidance and Other Offences?
Please note that all transfers of land in Ontario are subject to audit. Provisions for anti‑avoidance are enforced to ensure that it is reported and paid as required.
- This includes examining circumstances where Canadian citizens or permanent residents of Canada, as taxable trustees, hold property in trust for a foreign entity.
- It also includes preventing the use of multiple conveyances to avoid the NRST. Failure to pay may result in a penalty, fine, and/or imprisonment.
While it is early to predict the outcome of NRST, the first indications are that it has helped the real estate market cool off in the Greater Golden Horseshoe area.
If you still have any questions regarding speculation tax, home equity loans, mortgage stress test, second mortgages, line of credit, or private mortgages that have not been addressed, or if you have other questions relating to NRST or fix mortgage rate, variable mortgage rates, feel free to get in touch with us.
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