What Is The Non-Resident Speculation Tax — And How Can I Avoid It?
For newcomers to Canada, the housing market can be a tough nut to crack. It's expensive, competitive and governed by layers of regulations that need to be understood.
Some of these rules, like the mortgage stress test or Canada’s down payment guidelines, are meant to protect lenders. Others have been put in place to protect Canada’s limited housing supply.
A prime example is Ontario’s 25% Non-Resident Speculation Tax. (British Columbia taxes non-resident home purchases, too.) The NRST was implemented in October 2022 to limit the number of non-citizens and non-permanent residents purchasing residential real estate in Ontario.
If you’re new to the province and plan to buy a home before your citizenship status changes, the NRST could increase the cost by hundreds of thousands of dollars.
It’s important to understand how the NRST works — and whether you can avoid it — when budgeting for a home purchase.
When do you pay the NRST?
The NRST is charged on residential home purchases in Ontario that involve buyers who are neither Canadian citizens nor permanent residents. It also applies to foreign corporations that purchase residential properties in the province.
The NRST is usually paid when a transaction closes and the transfer of a property title is registered.
If the transfer is done electronically through Teraview, Ontario’s land registration system, NRST can be paid at the same time the transfer is registered.
If a paper registration is used, the NRST must be paid to Ontario’s Ministry of Municipal Affairs and Housing before the registration takes place.
Not paying the NRST as required can lead to penalties, fines, or even jail time.
Even if your application for permanent resident status is pending when you close on your home, you must still pay the NRST unless you’re eligible for an exemption. If you become a permanent resident after buying your home, you might qualify for an NRST rebate.
Properties subject to the NRST
The NRST is only applicable to residential real estate purchases, which include:
Detached houses.
Semi-detached houses.
Townhouses.
Condominiums.
Plexes (up to six units).
Cottages and cabins.
Parking units and storage units in condo complexes.
The NRST does not apply to:
Commercial or industrial properties.
Homes on farm land.
Land that holds more than six single-family residences.
If a property is considered mixed-use, with one part residential and another commercial or industrial, NRST is only charged on the residential component.
The purchase of a $2 million building that has $1.3 million in commercial space and a $700,000 condo on the second floor, for example, would only be subject to NRST on the $700,000.
You might still pay NRST when buying a home with a Canadian citizen
Let’s say a newly arrived immigrant decides to purchase a home with three Canadian citizens, and its ownership is divided equally between the buyers. The NRST is applied to the home’s entire sale price, not just the non-citizen’s 25% stake in the house.
In these situations, it will be up to the buyers to decide who pays what portion of the NRST. Whatever they decide, the full amount must be paid.
How much is the NRST?
NRST is 25% of a property’s purchase price.
Example: If you buy a home for $1,000,000 and the tax applies, you will owe $250,000 in NRST.
Ways to avoid paying the NRST
You may be able to avoid paying the NRST if you are:
A worker who is part of a provincial nominee program.
Considered a protected person by the Immigration and Refugee Board of Canada and Immigration, Refugees and Citizenship Canada.
The spouse of a Canadian citizen, permanent resident, nominee or protected person.
To qualify for an exemption, all owners of the home being purchased must certify that they will live in it as their principal residence within 60 days of registration.
Getting an NRST rebate
You may be eligible for an NRST rebate if the tax has been improperly paid or overpaid, or if you become a permanent resident of Canada after paying the NRST.
You have 180 days to apply for the rebate after becoming a permanent resident. Rebate applications can be submitted online using the Ministry of Finance’s online services portal.
Specific rebates also exist for international students and foreign workers if their homes were purchased in the Greater Golden Horseshoe region of Ontario before March 29, 2022, and were not assigned to another buyer.
Whether you’re applying for an exemption or a rebate, you’ll need to provide supporting documents that explain your situation.
The NRST and Canada’s foreign buyer ban
Canada’s foreign buyer ban is a federal law that prevents non-citizens and non-permanent residents from buying any residential property in Canada. It’s scheduled to remain in place until January 1, 2027.
You may be wondering, if there’s a foreign buyer ban in place for all of Canada, how can I buy a home in Ontario?
That’s because the ban contains exemptions that allow some foreign nationals to still buy property in Canada. This includes people who:
Hold a work permit.
Are enrolled at certain learning institutions.
Have protected person status.
Have a diplomatic or consular passport.
If those exemptions apply to you, you should be able to buy a home in Ontario.
But being exempt from the foreign buy ban doesn’t mean you’ll avoid the NRST. The only way you can elude both is to meet each one’s exemption criteria.
DIVE EVEN DEEPER
Clay Jarvis
