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Are you subject to the new Foreign Buyers Tax?

Toronto’s red-hot housing market has prompted the Ontario government to take several measures to cool off soaring home prices. Only time will tell whether the government’s actions will have an impact on curbing unprecedented appreciation in the GTA’s housing market.

Although the tax is labelled as a non-resident speculation tax the tax applies to all foreign nationals and is not limited to simply speculators. For some, what is more troubling is the fact that the tax will apply even if you are not a foreign national, but plan to acquire property with a foreign national that is not your spouse.

What is the Non-Resident Speculation Tax?

The non-resident speculation tax (NRST) is a 15% percent tax that is payable upon the purchase of residential property located in the Greater Golden Horseshoe (GGH) by foreign nationals, foreign corporations or a taxable trustee. The NRST is a tax that is payable at the time of purchase in addition to land transfer tax.

The GGH includes the Greater Toronto Area and the surrounding areas including Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Waterloo, Wellington and York.

Upon enactment of legislation, the effective date will be April 21, 2017. Therefore, if you entered into an agreement of purchase and sale prior to April 21, 2017, then you do not need to worry if the NRST tax applies. However, if you purchased the residential property after April 21, 2017, in the GGH area then you may be subject to NRST Tax.

Does the NRST tax apply to you?

The NRST applies to foreign nationals, foreign entities and taxable trustees. Foreign nationals are individuals who are not citizens, or permanent residents of Canada. A foreign corporation is a corporation not incorporated in Canada or a corporation incorporated in Canada but controlled in whole or in part by a foreign national or foreign Corporation. What qualifies as a taxable trustee can be quite complex, but for the purpose of this article it is important to note that if a foreign entity is holding title for a non foreign beneficiary the NRST tax still applies.

It is also important to note that if property is being purchased by four individuals and one individual is a foreign national and is only acquiring a 25% interest in the property the NRST tax is still applicable to the total value (ie consideration) of the property and not simply the 25% of the value of the property.

The exception is if the foreign national is married to a non-foreign national then in that instance, the NRST tax would not apply.

Am I eligible for any rebates?

Rebates: A rebate of the NRST tax may be available if:

  • The foreign national becomes a Canadian Citizen or permanent resident of Canada within four years of the date of purchase;
  • The foreign national is a student who has been enrolled full-time for at least 2 years from the date of purchase in an approved institution as outlined in Ontario Regulation 70/17 of the Ministry of Training, Colleges and Universities Act; or
  • The foreign national has legally worked full-time in Ontario for a Continuous period of one year from the date of purchase.

In order, to be eligible for these rebates the foreign national must exclusively hold the property or hold the property exclusively with his or her spouse from the date of purchase until the date of acquiring permanent residency status in Canada. The property must also have been used as the foreign national’s principal residence during the relevant period. The rebate will be paid with interest calculated at the prescribed refund rate under the Land Transfer Tax Act.

In order, to address soaring prices believed to be caused by foreign buyers labelled as speculators by the government of Ontario, the government has decided to respond by introducing legislation based on speculation as there is simply is not enough data to link the cause of soaring prices to foreign buyers.

 

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Bobby Vakili
Bobby Vakili
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