The cost of homes in Ontario has surged in the past few years, making it difficult for Canadians to afford their first homes. Many factors have contributed to the steep rising house prices. Inflation, supply chain bottlenecks, lower interest rates, and foreign real estate investors have all played a part. To bring home prices down, the federal and provincial governments are putting certain measures in place. One the Ontario government is implementing is an increase in the non-resident speculation tax (NRST).
What is the Non-Resident Speculation Tax?
The Non-Resident Speculation Tax is a tax applied to properties purchased in Ontario by individuals that are not Canadian. The NRST also applies to foreign corporations and taxable trustees.
As of March 30, 2022, there are two significant changes the Ontario government has implemented to the NRST. One was to increase the tax rate from 15 percent to 20 percent. The other was to expand the NRST tax provincewide. Previously it only applied to Ontario’s Greater Golden Horseshoe Region (GGH).
Non-Resident Speculation Tax applies to most residential properties. Properties used for agricultural, commercial, and industrial purposes, as well as, those with more than six rental units are excluded.
How is the Non-Resident Speculation Tax calculated, and who pays it?
The Ontario government applies the 20 percent NRST to the total value of the property.
Those exempt from the NRST should be aware that if they buy a property with a foreign national, the NRST will still apply. Everyone owning the property is responsible for paying the non-resident speculation tax.
It’s also well worth being aware that Land Transfer Tax (LTT) is over and above NRST.
Why is the government of Ontario imposing the NRST?
The speculative actions of foreign real estate investors fuel bidding wars. Making it almost impossible for the average Canadian to secure a down payment or mortgage approval for over-priced homes.
The purpose of the NRST is to make it more expensive for foreigners to buy investment homes in Ontario. The higher cost makes investing less appealing. With fewer foreign investors in the mix, the housing market should cool down, making it easier for Canadians to afford a home.
Are there any available rebates for the NRST?
Foreign nationals that buy a property and become permanent residents later, may be eligible for the NRST rebate.
Here’s how the NRST rebate works.
A foreign national that’s paid NRST on a property and becomes a permanent resident within four years of buying the home can apply for the NRST rebate.
To qualify for the rebate, they must be the owner of the property or joint owner with their spouse. This must also be using the home as their principal residence within 60 days of buying the property and remain there up until they apply for the rebate.
Applications for the NRST rebate are due within 90 days of becoming a permanent resident. Missing the deadline could mean being denied the rebate.
To help meet that deadline, there’s no need to wait for your permanent residence card before applying. A signed Confirmation of Permanent Residence document, or a letter from IRCC advising of permanent resident status, is enough for submitting a rebate application.
Non-Resident Speculation Tax rebate exemptions
Two exemptions allow for a foreign national to buy a home and still qualify for the NRST rebate. Both of these exemptions only qualify for those properties purchased before the recent update. They must also be within the Greater Golden Horseshoe Region.
The International Student NRST rebate
A foreign student studying here in Canada can qualify for the NRST rebate. There are criteria, such as course load and attending an “approved institution”, needed to qualify.
Foreign National Working in Ontario Rebate
Under certain guidelines, a foreign national working in Ontario could qualify for the NRST rebate. Some of the criteria include the number of hours worked per week and having a work permit for at least a year.
Who is exempt from the Non-Resident Speculation Tax?
There are some exceptions when it comes to NRST. A nominee, protected person, or a spouse of a nominee or a protected person can be exempt from paying the extra tax. Spouses of Canadian citizens or permanent residents are also exempt.
Nominee
A nominee is a foreign national that is nominated under the Ontario Immigrant Nominee Program.
Protected persons
Protected persons have refugee status under the Immigration and Refugee Protection Act (Canada).
Spouse
Foreign nationals married to someone exempt from paying NRST, are also exempt. To qualify for the exemption, both the foreign national and the spouse must own the property together and live in it as their primary residence.
Conclusion
The increase in home prices is apparent across many cities in Ontario. Foreign speculation purchases are one of the driving factors of price increases in the real estate market. The Ontario government is committed to making homes affordable for Canadians. One way they are fulfilling that commitment is by increasing the NRST, it’s less appealing to foreigners to buy investment homes in Ontario.
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