15% Ontario Tax on Foreign Buyers, But Will It Mean More Audits for Everyone?
[Updated April 27, 2017 7:00 PM ET] The Ontario government is expected to impose several new measures affecting real estate in the upcoming April 27, 2017 Budget. Full details have not yet been announced, but will likely include a 15% tax on certain foreign real estate purchasers, along with expanded rent controls, rules to prevent speculative “flipping” or assignment, and the power to tax vacant properties. The measures are stated to be in response to concerns about the red-hot housing market in parts of the province.
Since this is a Tax Blog, we will focus on the 15% non-resident buyers tax below. It is also being called a “Non-Resident Speculation Tax,” or NRST.
We have now created a special page dedicated to the NRST, available here.
Potentially affected purchasers should pay close attention to when these new rules come into force and whether there are any transitional rules, for example, covering purchase and sale agreements signed but not yet closed. [Note: the Province has confirmed the new 15% NRST will apply as of April 21, 2017 once the requisite legislation is enacted. It will not apply to binding purchase and sales agreements signed on or before April 20, 2017]
15% Non-Resident Buyers Tax
Ontario’s rules have not yet been released but it appears the 15% non-resident speculation tax or NRST will be imposed on purchasers of residential real estate who are neither Canadian citizens nor permanent residents
and who do not reside in the province. [While initial reports suggested the tax would apply only if the foreign buyer does not reside in Ontario, there is no mention of this in the Province’s NRST notice. We should know for sure after the Budget is released on April 27, 2017] It is expected to apply to properties in the Greater Golden Horseshoe Area (which includes the Greater Toronto Area and surrounding regions). [Note: the Province confirmed the NRST will apply in the following areas: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York. See map above]
While it’s is not clear if the NRST will apply to purchases through corporations or trusts, or to transfers of beneficial ownership, there are some clues it may apply based on another change introduced quietly months earlier: a mandatory new declaration. [Note: the Province has indeed confirmed the tax will apply to the entire consideration given for the transfer if any transferee is a foreign national individuals, foreign corporations, to trustees for the foregoing, or a foreign trustees. The NRST will also apply to unregistered dispositions of a beneficial interest. There will also be a number of exemptions and rebates. For example, joint purchases with a spouse who is a Canadian citizen, permanent resident of Canada will be exempt]
New Real Estate Reporting Requirements
Effective April 24, 2017, a new Section 5.0.1 form with prescribed information must be submitted for purchases in Ontario. As of May 8, 2017, the form is mandatory to complete closing. The prescribed information includes (but is not limited to) the following:
- whether the home is intended to be occupied by the person who purchases or acquires the land, or their family member(s), as their principal residence;
- the type of dwelling (detached, semi‑detached, condominiums, cottages, etc.);
- whether the property, in part or in whole, is intended to be leased out;
- residency, citizenship and permanent resident status, if the person who purchases or acquires the land is an individual;
- information about incorporation, ownership and control, if the purchasers are corporations; and
- information about beneficial owners, if the person who purchases or acquires the land is acting as a trustee, nominee or in a similar capacity.
Ostensibly, the information is to allow the Province “to better understand trends in the housing market…for the administration and enforcement of the LTT and to support evidence‑based policy development with respect to Ontario’s real estate market.” This is no doubt true given the scope of the NRST as announced.
However, such information would also be very useful for the Canada Revenue Agency in auditing all real property transactions for income tax and the GST/HST new housing/new rental property rebates. For example, it should be readily apparent to CRA if a person who has claimed the GST/HST new housing rebate is actually renting the property and, thus, ineligible (although eligible for the equivalent rental rebate). Similarly, CRA should be able to more readily identify based on the form if a particular property sold is in fact a principal residence eligible for the income tax exemption. Therefore, it is reasonable to speculate that CRA audits of housing transactions by ALL buyers (not just non-residents) could increase with the availability of this information.
Ontario’s introduction of the 15% non-resident speculation tax seems risky given that an equivalent measure introduced in Vancouver in 2016 is subject to a potential class action lawsuit (certification hearings are to take place this Fall) challenging its validity under the Constitution and Canada’s international trade agreements.
Simon Thang, LL.B, LL.M (Taxation) is tax lawyer advising exclusively in the areas of Canadian transaction taxes (GST/HST, PST, Land Transfer Tax), and customs and trade. He is the principal of Thang Tax Law.