Last year, the British Columbia province government introduced the 15% Foreign Buyers Tax to curb the rising housing prices. Following suit, on April 20, the Ontario government announced a similar 15% non-resident speculation tax to cool the hot housing market in its southern cities.
Here is an overview of Ontario’s 15% non-resident speculation tax, and its computation/calculation:
Ontario’s Non-Resident Speculation Tax
The Non-Resident Speculation Tax is a 15% tax in addition to the general land transfer tax on purchases made as a financial investment rather than to own a place to live. This tax applies to residential properties purchased in certain areas of Ontario.
Which Regions in Ontario Need To Comply With The 15% Non-Resident Speculation Tax?
The ‘15% Non-Resident Speculation Tax’ applies to purchases of residential property in the Greater Golden Horseshoe region.
This region includes the following areas:
Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.
Who is subject to the 15% Non-Resident Speculation Tax?
- Non-Canadian Individuals (i.e. individuals, who are not Canadian citizens or on Permanent Resident visa);
- Non- Canadian Corporations (i.e. Corporations not incorporated in Canada, or incorporated in Canada but with majority of foreign shareholders); and
- Taxable Trustees (i.e. 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.
Note that, the above-mentioned entities need to pay the 15% Non-Resident Speculation Tax’ along with the general land transfer tax ranging from 0.5% to 2.5%.
What Kind of Properties Does The 15% Non-Resident Speculation Tax Apply To?
The 15% Non-Resident Speculation Tax applies to purchases of:
- Land containing between one and six single-family residences, such as detached houses, semi-detached houses, townhouses and condominiums.
However, note that the tax does not apply to multi-residential rental apartment buildings with more than six units, or agricultural, commercial or industrial land.
How Will The Non-Resident Speculation Tax Be Computed?
For example, if a person sells a qualifying property to a non-resident person at a selling price of CA$400,000.
The general land transfer tax will be calculated as follows:
- 0.5% on $55,000 of the 400,000 = $275
- 1% on $400,000 less $55,000 up to $250,000 = 1% of 195,000 = $1,950
- 1.5% on remaining amount of $150,000 = $2,250.
Total land transfer tax payable = $4,475
The Non-Resident Speculation Tax on this property will apply as follows:
- 15% of $400,000 = $60,000
The total tax payable by the non-resident buyer will be $64,475
Let’s say if the property was bought together by 4 individuals with a 25% ownership each of which one of them is a non-resident person, even then the non-resident speculation tax would apply, and that too to the entire value of $400,000.
Penalties in case of Non-Resident Speculation Tax Non-Compliance
All transfers of land in Ontario are subject to audit. Anti-avoidance provisions ensure that the ‘Non-Resident Speculation Tax’ is reported and paid as required. Individuals, relying on multiple conveyances should be aware that the anti-avoidance provisions cover even this method. Thus, failure to pay the ‘Non-Resident Speculation Tax’ may result in a penalty, fine and/or imprisonment.
As mentioned in the example, if the purchase is made by multiple individuals, each transferee is equally liable for the tax payment.
What Situations Are Exempted From Non-Resident Speculation Tax or May Claim Rebate?
Certain situations are exempt from the ‘non-resident speculation tax’, such as:
- Property bought by refugees;
- Principal residence for a foreign national under the Ontario Immigrant Nominee Program, designed to help employers having trouble finding qualified workers in Ontario;
- Property purchased by a foreign national whose spouse is a Canadian citizen, permanent resident, refugee or exempt under the Ontario Immigrant Nominee Program; and
- Purchases made by trustees of mutual fund trusts, real estate investment trusts or specified investment flow-through trust.
Additionally, rebate situations may apply when the property purchased by the foreign has been used as principal residence, and the person purchasing a qualifying property:
- Becomes a Canadian citizen or permanent resident within four years of the purchase, or
- The buyer is a student enrolled in a full-time Canadian program for at least two years after the purchase, or
- Is a foreigner legally and continuously working in Ontario on a full-time basis for a year from the date of purchase.
Any property bought by foreign nationals in qualifying regions of Ontario after April 21, 2017 is subject to the ‘Non-Resident Speculation Tax’. Binding agreements of purchase and sale signed on or before April 20, 2017 are not subject to the non-resident speculation tax.
If in case the property is exempted from the tax due to the above-mentioned reasons, it should be stated in the Land transfer tax affidavits or statements along with supporting documents of proof. If the tax applies and has been paid, it should be mentioned in the land documents that the tax has been paid to the Ministry of Finance with the receipt number.
If you have any queries or confusion regarding these land transfer tax and foreign national buyers tax, it is highly recommended to reach out to a Canadian tax professional.
AG TAX LLP CAN HELP
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.
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