What is the NRST tax? Who and what does it apply to?
Effective April 21, 2017, a 15% “speculation tax” was put into law by the Ontario Government on foreign nationals with the purpose of cooling off the overheating residential housing market in the Greater Golden Horseshoe Region. This tax affects any purchases with a closing date of April 21, 2017 or later; it is an additional cost that is payable on closing. Foreign nationals are individuals who are non-citizens and non-permanent residents of Canada, foreign corporations, and taxable trustees. Permanent residents and Canadian citizens living outside Canada are not affected. The types of properties subject to this tax are land containing at least one but not more than 6 single family residences. Single family residences are those, which lie on land that contains a detached, or semi detached house, townhouse or unit in a condo. Structures ranging from duplexes through sixplexes, which contain various units, are also subject to this tax. This tax does not apply to land containing residential apartment buildings with more than six units, or land that is agricultural, commercial or industrial.
Applying the Tax
The application of this tax is as follows: Suppose a foreign national purchases a residential condo in Toronto for $800,000. The 15% tax would apply to the full $800k, therefore $120k of NRST is payable. It is important to note that this tax is only payable on the portion of the price that is attributable to residential property. For instance if the total sales price for a detached house on a piece of agricultural land is $1,000,000 and the value of the residential house is $300,000, the NRST tax would only apply to the $300k portion as agricultural land is exempt from the tax.
Possible solutions for legally avoiding NRST
Exemptions may be available to: 1) foreign nationals who are nominated under the Ontario Immigrant Nominee program at the time of purchase and had applied for permanent residency status. 2) Foreign nationals whose refugee protection is conferred at time of acquisition. 3) Foreign national is who jointly purchase residential property with a spouse; the spouse must be a Canadian citizen, permanent resident, nominee or a protected person. It is important to note that these exemptions only apply if the foreign national is able to certify and prove that they will occupy the residence as their principal residence. Although NRST is unavoidable for those foreign nationals who don’t fall under those exemptions, there are rebates available. The following situations apply from the date of purchase and could qualify a foreign national for a rebate at a later date. If the foreign national becomes a permanent resident of Canada within 4 years, is an international student who has been enrolled full time for at least 2 years at an Ontario campus or has been legally working full time for at least 1 year.
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If you are a foreign national who is considering purchasing residential real estate in Canada and intend to occupy it as your primary residence, please do not hesitate to contact us for any planning, or concerns about whether NRST applies to you, and/or if tax exemptions apply to your situation.