Guide to Ontario Non-Resident (Foreign Buyer) Speculation Tax

What is the Non-Resident Speculation Tax?

The NRST is a 15% tax that the province of Ontario has imposed on certain foreign buyers of residential property in the Greater Golden Horseshoe area. With the average price of a detached home in Toronto in the $1.5 M range, foreign buyers may be required to pay over $200,000 in NRST.

Why is Ontario Imposing this tax?

In words of the Minister of Finance upon introducing the province’s Budget on April 27, 2017: “The government is concerned that non-resident investors – who are not planning on living in the province – have been purchasing Ontario homes primarily for speculation purposes.” Interestingly, the province has not cited any data or statistics to support introduction of the NRST.

What properties does the tax apply to?

The tax applies to purchases of land containing between one and six single-family residences, including detached houses, semi-detached houses, townhouses and condos. It does not apply to multi-residential rental apartment buildings with more than six units, or agricultural, commercial or industrial land.

 Who does the tax apply to?

The tax applies to buyers who are not Canadian citizens or permanent residents, non-Canadian corporations and taxable trustees for purchases of residential property in the Greater Golden Horseshoe area. That area includes the Greater Toronto Area, and surrounding regions such as Niagara, Waterloo, the counties of Haldimand, Brant, Wellington, Dufferin, Simcoe, Peterborough, Northumberland and the Kawartha Lakes area.

Non-Canadian corporations are defined as those: not incorporated in Canada; incorporated in the country but controlled by a foreign national or corporation and with no shares listed on a Canadian stock exchange; or controlled directly or indirectly by a foreign entity.

Taxable trustees are defined as either a foreign entity holding a title in trust for beneficiaries or a Canadian citizen, or a permanent resident, or a corporation holding a title in trust for foreign beneficiaries.

Who gets an exception?

The tax will not apply to:

  • Refugees
  • The principal residence for a foreign national under the Ontario Immigrant Nominee Program, which is designed to help employers having trouble finding qualified workers in Ontario.
  • A joint purchase by a foreign national if their spouse is a Canadian citizen, permanent resident, refugee or exempt under the Ontario Immigrant Nominee Program.
  • Purchases by a trustee of a mutual fund trust, real estate investment trust or specified investment flow-through trust.

Who gets a rebate?

Rebates (with interest) will be granted to the following people if they either exclusively hold the property or hold it jointly with their spouse and it has been used as their principal residence:

  •  A foreign national who becomes a citizen or permanent resident within four years of the purchase.
  •  A foreign student who has been enrolled full-time for at least two years after the purchase
  •  A foreign national who has legally and continuously worked full-time in Ontario for a year from the date of purchase.

Dealing with Financing

As the events of the last few years in the real estate industry show, people forget about the tremendous financial responsibility of purchasing a home at their peril. Here are a few tips for dealing with the dollar signs so that you can take down that “for sale” sign on your new home.

Get pre-approved

Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. You can also put yourself in a better position to make a serious offer when you do find the right house. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.

Choose your mortgage carefully

Used to be the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s better to opt for the 30-year mortgage instead of the 15-year. This way, you have a lower monthly payment, with the option of paying an additional principal when money is good. Additionally, when picking a mortgage, you usually have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time—and given the current real estate market, you should—taking the points will save you money.

Do your homework before bidding

Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood with sites like Zillow. Consider especially sales of similar homes in the last three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening bid should probably be about 8 to 10 percent lower than what the seller is asking.