Optimizer

2017 April Edition


New Ontario Non-Resident Speculation Tax


The Ontario government announced a 15% non-resident speculation tax (“NRST”) and other measures aimed at cooling down the housing market. In this special edition of The Optimizer, we take an in-depth look at the specifics of the NRST, as well as an overview of other proposed measures.

Non-Resident Speculation Tax


The 15% NRST applies to 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. Geographically, the GGH includes Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.

The 15% NRST applies 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 (see “entities subject to NRST” below for details). This includes co-ownership arrangements where only one of several transferees is a foreign entity or taxable trustee. In co-ownership arrangements, each transferee is jointly and severally liable for any NRST payable, including those that are not foreign entities or taxable trustees.

The NRST is effective April 21, 2017. Binding Agreements of Purchase and Sale signed on or before April 20, 2017 are not subject to the NRST.

Entities subject to NRST


The NRST applies to foreign entities or taxable trustees who purchase or acquire residential property in the GGH.

A foreign entity is either a foreign national or a foreign corporation.

• A foreign national is an individual who is not a Canadian citizen or permanent resident of Canada.

• A foreign corporation is a corporation that is one of the following:
      - Is not incorporated in Canada;
      - Is incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation, unless the shares of the   corporation are listed on a Canadian stock exchange; or
      - Is controlled directly or indirectly by a foreign entity

    A taxable trustee is a trustee that is one of the following:

    • A foreign entity holding title in trust for beneficiaries, or

    • A Canadian citizen, permanent resident of Canada, or a corporation holding title in trust for foreign entity beneficiaries.

Property Subject to the NRST


Any transfer of land which contains at least one and not more than six single family residences.

Examples of property subject to NRST:

• detached and semi-detached houses, townhouses and condominium units.

• duplexes, triplexes, fourplexes, fiveplexes and sixplexes.

Examples of property NOT subject to NRST:

• Commercial property

• Residential apartment buildings

• Agricultural or industrial property

Exceptions


The NRST does not apply to situations where:

• a foreign national receives confirmation under the Ontario Immigrant Nominee Program

• a foreign national with refugee status

• A foreign national who has a spouse who is a Canadian citizen or permanent resident of Canada and the foreign national jointly purchases residential property with that spouse (this exception does not apply if the foreign national and his or her spouse acquire the property with a third person who is also a foreign national).

Rebate of the NRST


A rebate of the NRST may be available if:

• The foreign national becomes a Canadian citizen or permanent resident of Canada within four years of the date of the purchase or acquisition;

• The foreign national is a student attending an approved institution who has been enrolled full-time for at least two years from the date of purchase or acquisition; or

• The foreign national has legally worked full-time in Ontario for a continuous period of one year since the date of purchase or acquisition.

The foreign national must exclusively hold title of the property (or hold jointly with a spouse) and use the property as a principal residence. The rebate will be paid with interest, calculated at a prescribed refund rate.

Other Housing Measures


Other measures proposed by the government include:

• Introducing legislation that would, if passed, empower the City of Toronto, and potentially other interested municipalities, to introduce a vacant homes property tax

• Introducing a targeted $125-million, five-year program to further encourage the construction of new rental apartment buildings by rebating a portion of development charges.

• Expanding rent control to all private rental units in Ontario, including those built after 1991

• Ensuring that property tax for new multi-residential apartment buildings is charged at a similar rate as other residential properties.


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Editor:

Brook Scarr, CPA, CA
Partner, Taxation

All rights reserved. Permission to reproduce or copy in any form or means is prohibited without the express written consent of SF Partnership, LLP. All information contained in this publication is general in nature, and should not be construed as professional advice. Readers are urged to consult their professional advisors before taking any action based on this publication. ©SF Partnership, LLP 2017