Can Ontario Cool a Hot Housing Market with a Non-Resident Tax?

On April 21, 2017, the Ontario Ministry of Finance announced a new Non-Resident Speculation Tax (NRST). The NRST is a 15 per cent tax on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe (“GGH”) by individuals who are not citizens or permanent residents of Canada or by foreign corporations (“foreign entities”) and taxable trustees.

The GGH includes the following geographic areas: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.

The 15 per cent NRST applies to the following:

• The transfer of land which contains at least one and not more than six single family residences. Examples of land containing one single family residence include detached and semi-detached houses, townhouses and condominium units. In a situation involving the purchase of multiple condominium units, each unit would be considered land containing one single family residence. Examples of land containing more than one single family residence that are subject to the tax include duplexes, triplexes, fourplexes, fiveplexes and sixplexes.
• The value of the consideration for the residential property. If the land transferred includes both residential property and another type of property, the NRST applies on the portion of the value of the consideration attributable to the residential property. For example, if the purchase price of the transaction is $1,000,000 and contains one single family residence with a value of the consideration of $400,000 and commercial land with a value of the consideration of $600,000, the 15 per cent NRST would only apply to the $400,000 portion.

With respect to its general application, the NRST will apply to the value of the consideration for a transfer of residential property if any one of the transferees is a foreign entity or taxable trustee. For example, if a transfer of residential property is made to four transferees, one of whom is a foreign entity that acquires a 25 per cent share in the land, the NRST would apply to 100 per cent of the value of the consideration for the transfer. Each transferee is jointly and severally liable for any NRST payable. If a foreign entity or taxable trustee does not pay the NRST, the other transferees will be required to pay the tax. This applies even if the other transferees are Canadian citizens or permanent residents of Canada.

The NRST does not apply when a person purchases or acquires residential property as a trustee of a mutual fund trust, real estate investment trust or specified investment flow through trust. However, it does apply to unregistered dispositions of a beneficial interest in residential property.

It appears that this tax has been introduced to cool the hot housing market in the Greater Toronto Area. Whether housing will become more affordable remains to be seen. For more information on the NRST, including details on exemptions, rebates and payment, please see the full document released by the Ontario Ministry of Finance.

To learn more about how the NRST may impact you or your business, contact Glenn Willis, CPA, CA, CPA, CMA, at 416.596.1711 or [email protected].