For those of you that don’t know, the NRST stands for the Non-Resident Speculation Tax. This is a tax in Ontario that is applied to anyone that is a non-citizen or a non-permanent residence of Canada purchasing a home in the province of Ontario. My name is Britt Huggins and I’m a Toronto real estate agent working in the GTA and the surrounding areas. I am currently working with some clients who have moved from the United States and we quickly learned that the taxes they will pay on top of their purchase have recently increased from 20% to 25%. What is the reason, why is this happening and how does it effect buyers? Let’s get to it.
Increasing the NRST
Beginning October 25, 2022, the NRST rate will jump from to 20% to 25% and will be applied to all regions of the province of Ontario. The government increased the NRST from 15 to 20% in March this year. The latest increase from 20 to 25% makes it the highest provincial tax that exists in Canada to prevent foreign speculation in the housing sector. The NRST applies to the transfer of “designated land”, which is considered land that contains at least one and no more than six single family residences.
The Toronto real estate market continues to be competitive and the government is trying to ensure that foreign investors don’t take advantage of the loopholes that exist in the Canadian tax system. This is likely what led to the NRST increase.
How the NRST is Applied
This tax will be applicable to any individual who is not a Canadian citizen, permanent resident or by foreign corporations or taxable trustees. It’s important to note that the tax is applicable on the purchase if any of the persons purchasing are foreign entities or taxable trustees, regardless of their share of ownership. For instance, if the transfer of a residential or commercial property is made to four transferees, then the tax will apply to 100% of the value of the property. There are some exemptions from the tax including protected persons (refugees), foreign nationals in Canada, permanent residents of Canada and spouses of Canadian citizens.
What Purchase Date is Effected by the 25% NRST?
If my client bought their property before October 25, 2022, are they subject to the 20% or 25% tax? The transitional provisions have exemptions including sales agreements made on or before October 24. Those who qualify for this criteria are still required to pay the 20% tax (or 15% rate in case the agreement was made after March 30, 2022). Similarly, if the property is located outside of the Greater Golden Horseshoe and the agreement of purchase and sale was completed before March 30, 2022, they buyers are exempt from the NRST.
The tax is applicable to all residential houses that comprise one or more than six family residences. This entails detached homes, triplexes, semi-detached, condominium units and townhouses. The property is taxable regardless of whether a family resides in the property or if it is rented.
The tax increase does not apply to other forms of property like land with several residential apartment buildings, commercial property, agricultural land and industrial land. You can also talk to your real estate agent, mortgage broker or lawyer for specific details about the increased tax.
Is the NRST Paid in Addition to the Land Transfer Tax?
Although the tax is implemented by the Land Transfer Tax and administered in the same manner, the NRST tax is applicable on top of the Land Transfer Tax.
If my clients want to purchase a home in Toronto and one of them is a Canadian citizen while the other one is not a Canadian citizen, how will the tax increase apply in this situation? The answer is if the clients’ were not spouses by the time they purchased the property, then the tax changes will apply in full value. In the case that they were spouses at the time then they will be exempted from the NRST tax. You can visit the Government of Ontario’s website more information such as how your customers can qualify for rebates or even how you can pay the new tax.
The provisions and regulations of the Act can be complex. As such, it would be a good idea to seek proper guidance from an experienced attorney, mortgage broker or Toronto real estate agent. This piece doesn’t cover all the details or provisions of the act. It only gives an overview of NRST in regard to the recent increase in tax rates.
For more information, feel free to give us a call!
Danielle Demerino
ddemerino@royallepage.ca
416-728-5401
Brittany Huggins
bhuggins@royallepage.ca
647-863-7234
