Non-Resident Speculation tax (NRST) for foreign buyers in real estate

There is more to real estate than just buying a house. There are different fees, taxes, and rules when it comes to someone outside of Canada trying to buy a house in this country. Let’s take a look at one important type, the Non-Residential Speculation Tax (NRST.)

About NRST

This tax was brought into effect on April 21, 2017. It is a 15% tax on a purchase or acquisition of residential property in the Great Golden Horseshoe Region (GGHR) by non-permanent residents or non-citizens of Canada. This includes foreign corporations and taxable trustees. The NRST is applied in addition to the Land Transfer Tax (LTT) in Ontario.

The GGHR includes the following geographic areas:

• City of Barrie
• County of Brant
• City of Brantford
• County of Dufferin
• Regional Municipality of Durham
• City of Guelph
• Haldimand County
• Regional Municipality of Halton
• City of Hamilton
• City of Kawartha Lakes
• Regional Municipality of Niagara
• County of Northumberland
• City of Orillia
• Regional Municipality of Peel
• City of Peterborough
• County of Peterborough
• County of Simcoe
• City of Toronto
• Regional Municipality of Waterloo
• County of Wellington, and
• Regional Municipality of York.

which means NRST does not applicable to properties which do not fall under GGHR.

Some of those terms may be unfamiliar. Lawyers like Minhas Lawyer services can help explain in detail, but here is a brief explanation of a few of those terms:

• Permanent Resident – one who has acquired, and not lost, the status of permanent resident
• Foreign Entity – foreign national or corporation
• Foreign National – one who is not a Canadian citizen or permanent resident
• Foreign Corporation – a corporation not incorporated in Canada, and whose stocks are not listed on the stock exchange in Canada.

What Types of Property are subject to NRST

NRST applies to land that has one, but not more than, six single-family homes.

• Condominium unit
• townhouse
• a semi-detached house
• a detached house
• duplexes, triplexes, fourplexes, fiveplexes, sixplexes

The NRST does not apply to land that has rental multi-residential apartment buildings with six or more units, commercial land, industrial land, and agricultural land.

As per the Ontario Government, the NRST applies on 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 percent NRST would apply to only the $400,000 portion.

The 15 percent 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.

For example, if a transfer of residential property is made to four transferees, one of whom is a foreign entity that acquires a 25 percent share in the land, the NRST would apply to 100 percent 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.

Exemptions

There are situations with NRST that have exemptions.

• Spouse: when a foreign national, whose spouse is a permanent resident of Canada, jointly purchases a residence with the spouse. The spouse can also be a nominee or protected person
• Nominee: a nominated foreign national under the Ontario Immigrant Nominee Program at the time of purchase. The foreign national has certified they will apply or have already applied to become a permanent resident of Canada
• Protected Person: this term refers to a foreign national who has refugee protection at the time of purchase

To qualify for an exemption, the foreign national (and if applicable their spouse) must certify they will occupy the property as their principal residence.

The exemption applies if the Canadian citizen, permanent resident of Canada, nominee or protected person and his or her foreign national spouse purchased the property with other individuals who are Canadian citizens, permanent residents of Canada, nominees, or protected persons.

For the spousal exemption, multiple spousal units may also hold title, so long as one spouse is a Canadian citizen, permanent resident of Canada, nominee or protected person.

All transferees in the conveyance must also certify that they will occupy the property as their principal residence.

However, the exemption does not apply if the Canadian citizen, permanent resident of Canada, nominee, or protected person and his or her foreign national spouse purchased the property with another foreign national who is not a nominee or protected person. For example, if three parties purchase a property as follows:

• one Canadian citizen and his or her foreign national spouse, and
• a third party who is a foreign national (other than a nominee or protected person),

the exemption would not apply and NRST would be payable.

Rebates

A rebate of the NRST may be available in the following situations:

• Foreign national who becomes a permanent resident of Canada– The foreign national becomes a permanent resident of Canada within four years of the date of the purchase or acquisition
• International student– The foreign national is a student who has been enrolled full-time for a continuous period of at least two years from the date of purchase or acquisition in an “approved institution” (under section 8 of Ontario Regulation 70/17 of the Ministry of Training, Colleges, and Universities Act) at a campus located in Ontario. Full-time means enrolled in at least 60 percent (if the individual does not have a disability) or 40 percent (if the individual has a disability) of what the approved institution considers to be a full course load for the academic year, or
• Foreign national working in Ontario– The foreign national has legally worked full-time under a valid work permit in Ontario for a continuous period of at least one year since the date of purchase or acquisition. Full-time means an employment position that requires no fewer than 30 hours of paid work per week over a 12-month period and no fewer than a total of 1,560 hours of paid work over that period.

To qualify for a rebate, the foreign national must exclusively hold the property, or hold the property exclusively with his or her spouse. The property must also have been occupied as the foreign national’s (and if applicable his or her spouse’s) principal residence for the duration of the period that begins within 60 days after the date of the purchase or acquisition.

All transfers of land in Ontario are subject to audit. Therefore, hiring a skilled lawyer in your real estate transactions is very important. Sometimes the formal terms make things complicated. Having a lawyer like Minhas Lawyer services will help to make it a little easier to understand the NRST. Minhas Lawyers and its team of lawyers and staff have extensive experience in real estate transactions. Minhas Lawyers have served thousands of real estate and immigration clients so far.