What is This Foreign Buyer Tax & Why Does it Exist?
The Toronto foreign buyer tax is a tax specifically for foreigners aiming to buy property in the Greater Toronto, Ontario region. The tax requires them to pay an additional 15% tax rate on top of all other costs associated with the property. Since being imposed, foreign-bought sales of real estate in the Toronto region have dropped from over 5 percent to just over 3 percent.
Officially titled the Non-Resident Speculation Tax (NRST), this tax is often referred to as the Toronto foreign buyer tax.
Why Was The Non-Resident Speculation Tax Introduced?
The speculation tax was introduced in Ontario in an attempt to gain control over a housing market that was quickly spinning out of control.
With houses too expensive for anyone living in the area full time to buy, Toronto enacted a number of changes (including the foreign buyer tax in Ontario) with the goal of slowing down the rising costs.
The speculation tax itself is not intended to dissuade new Canadians who want to be home buyers, Canadian citizens, permanent residents, or those hoping to move to Canada and live here full time from buying residential real estate. Instead, it is aimed at investors in Ontario.
Economists disagree about whether or not using a foreign investor tax in Toronto will be effective in helping to slow the rising costs, but foreign buyers will have to deal with the non-resident speculation tax regardless of its effect until the law changes.
Who is Required to Pay the NRST Tax?
The NRST tax must be paid when the property is purchased by those who are not citizens or permanent Canadian residents unless they fit one of the exemption criteria. In real estate transactions with multiple people or entities involved, the NRST tax will apply so long as any single individual involved in the purchase is a non-resident. Some exemption criteria apply to this rule, though.
In some cases, it is possible that you will be required to pay the NRST tax in full when purchasing a property, only to be able to get a rebate later on. Through the Ontario Land Transfer Tax Rebate program, rebates can happen within a certain set of parameters.
Foreign Entity or Buyer Tax Exemption Information
There are some exemptions from this rule for new Canadians and those who wish to make Canada their principal residence.
Some of the exemptions are as follows:
- Tax does not apply if you are a permanent resident or citizen of Canada.
- If you pay the tax but later become a permanent resident or citizen, you may be eligible for a rebate of what you paid. You must become a citizen within four years for this rebate to apply.
- If you pay the tax but live or work in the area, you can apply for a rebate. You must have worked for at least one continuous year from the date of your property acquisition with a valid work permit or visa to be eligible for a rebate.
- Foreign students do not need to pay the non-resident speculation tax if they are on an approved study period of at least one continuous year. The student must be enrolled full-time.
- Those applying for landed immigrant status do not need to pay the tax.
- If you are a Canadian citizen living outside of Canada, you do not need to pay the tax.
- Spouse: Foreign nationals who jointly purchase a residential property with a spouse who is a Canadian citizen, permanent resident of Canada, nominee or protected person.
- Nominee – Foreign nationals who are nominated under the Ontario Immigrant Nominee Program (nominee) at the time of the purchase or acquisition, and the foreign nationals have applied or certified that they will apply to become a Canadian citizen or permanent resident of Canada.
- Protected person – A foreign national on whom refugee protection is conferred (protected person) under section 95 of the Immigration and Refugee Protection Act (Canada) at the time of the purchase or acquisition.
Otherwise, all residential purchases made by non-citizens (including foreign corporations) will be taxed by Toronto. Based on statistics, it is estimated that the tax only affects 1.5% of foreign entities or individuals that participate in real estate sales in the Toronto Area of Ontario.
How Can I Find Out If I Am Exempt?
If you are unsure about your tax exemption status for the NRST or you want to find out if you might be eligible for the rebate, the best place to start checking is on the official government page.
Here, you can read about the tax in full and find out all of the rules about exemptions, rebates, and more. If you are still uncertain about how you will be classified when determining your tax exemption eligibility, it is best to contact a tax expert or the ministry directly.
These professionals or entities will be able to help you determine your exemption eligibility and direct you on how to prepare the appropriate documentation of your statue.
I Bought Real Estate Five Years Ago. Does This Tax Affect Me?
This tax does not backdate to sales that happened before April 21, 2017. If the sale happened before the legislation was introduced around this time, you do not have to pay any extra tax. If the sale occurred right around that time without your knowledge of the tax, you may be able to contact the city for a special exemption.
What Real Estate is Affected By This Tax?
The tax is to be put on all residential property in the Greater Golden Horseshoe Region of Toronto. Those unfamiliar with the area may not know whether or not the area they are interested is part of this region.
The Greater Golden Horseshoe Region is made up of the following regions:
- City of Barrie
- County of Brant
- City of Brantford
- County of Dufferin
- Regional Municipality of Durham
- City of Guelph
- Haldimand County
- Regional Municipality of Halton
- City of Hamilton
- City of Kawartha Lakes
- Regional Municipality of Niagara
- County of Northumberland
- City of Orillia
- Regional Municipality of Peel
- City of Peterborough
- County of Peterborough
- County of Simcoe
- City of Toronto
- Regional Municipality of Waterloo
- County of Wellington, and
- Regional Municipality of York
As you can see, there are several areas affected. If you need to get more perspective on these areas, take a look at this map. As you can see, it covers a large portion of Ontario.
How Are Prices Affected By The Ontario Foreign Buyer Tax?
The tax applies to all residential real estate in the Toronto region. Whether they are newly built condos or old houses, the tax applies if the homebuyers are non-citizens or non-permanent residents. And while this levy in actuality only affects about 1.5% of buyers, the psychological effect had by its sudden introduction is strong.
In the weeks after the legislation was introduced, prices in the Toronto real estate market plummeted. A similar effect happened in Vancouver when a foreign buyer tax was introduced. While the effect is small, the fear of this tax and what it stands for created many fearful buyers in a stressed economy.
Ontario has expanded its non-resident speculation tax (NRST) to apply during certain times for home purchases. The new laws came into effect on March 30th, 2022, which means that 15% will no longer suffice when dealing with buyers from outside Canada, and foreign corporations/trusts must pay 20%.
Toronto Foreign Buyers Tax FAQs
Can I Buy a Single-Family House In Canada As a Foreigner?
Yes; you can buy a house in Canada as a foreigner. When buying a house here as a non-citizen, you are likely to need to pay a larger down payment if you would like to get a mortgage, and you will also be responsible for paying the non-resident speculation tax (also known as the Toronto Foreign Buyers Tax) when you make your purchase in the Greater Horseshoe Region of Toronto.
What is NRST?
NRST, an abbreviation for non-resident speculation tax, is the official name of the foreign buyer’s tax in the Toronto area. While many refer to this tax as a foreign buyers tax to make the purpose of the tax more clear, the official documentation always uses NRST.
Do I Have to Pay the NRST and LTT When Buying Real Estate in Canada?
Both of these taxes, the non-resident speculation tax, and the land transfer tax, must be paid separately. These taxes are not paid on top of one another; they should be calculated separately based on the cost of the property that is being transferred and then paid to the Ministry of Finance.
I Am a Canadian Citizen Who Lives Abroad; Do I Have to Pay the NRST?
No. Those considered to be permanent residents of Canada are not responsible for paying the NRST, regardless of where you are living when you purchase real estate here.
My Business Partner is Not a Citizen; Do We Have to Pay the NRST?
Yes; if any individual involved in the purchase is a non-citizen/non-resident of Canada, everyone becomes responsible for paying the NRST. If your business partner becomes a resident down the line or otherwise fits into an exemption category, you may not have to pay for the fee.
If you are unsure about your eligibility in this situation, the best way to find out is to contact a tax expert or the Ministry of Finance directly to determine what your status will be.
How Much Tax Do You Pay When You Buy Homes or Land in Canada?
In addition to the cost of your mortgage, there are several closing costs and fees you may be responsible for paying. In terms of taxes specifically, the following taxes may apply to your purchase:
- Toronto foreign buyers tax
- Provincial land transfer tax (also known as a property transfer tax)
- GST/HST if the house is a new build
- Municipal level land transfer tax
- Sales tax on the purchase of mortgage insurance
These taxes are not the only fee that may be owed with closing costs. Home insurance, interest adjustments, and other fees may also need to be covered.
Do I Pay U.S. Taxes On Foreign Property?
Generally speaking, a U.S. citizen who purchases a principal residence abroad do not need to report the purchase of the property or pay any U.S. taxes on the purchase. If, however, the U.S. citizen makes rental income from a foreign property, this income should be reported as part of their tax filing.
Know Before You Buy
This foreign buyer tax can make a big difference in what you can and cannot afford in the province. Even if you plan to become a citizen or permanent resident within the next few years and could be eligible for a rebate, paying this large tax upfront can be very costly, and not everyone will be able to afford to do so.
Keep in mind that the foreign buyer’s tax in Ontario was not created to punish anyone, and working with local management to find the right solution for your situation is possible. Keep an open mind and remember that the tax, while steep, will go towards building up the province while being invested in it. And that is a prize in-and-of-itself.
Want to learn more about how we do property management in Toronto? Check out our simple fee schedule at https://buttonwood.ca/services/residential-property-management/.