Tax Alert - Ontario Introduces 15% Residential Property Transfer Tax on Foreign Buyers

April 2017

Toronto_Landing_Banner_679x220.jpg

On April 20, 2017, the Ontario government introduced the controversial “Ontario’s Fair Housing Plan” (the Plan) which they contend is a “comprehensive package of measures to help more people find affordable homes.” The Plan introduces measures that will have a significant impact to the Ontario residential real estate market and includes 16 measures that are intended to be actions to address the demand for housing, protect renters, increase housing supply, protect homebuyers and increase information sharing. 

The Non-Resident Speculation Tax

The government introduced a 15% non-resident speculation tax (NRST) that applies to the purchase or acquisition of an interest in residential property located in Greater Toronto Area (GTA) and the Greater Golden Horseshoe (GGH)1 by foreign entities and taxable trustees2

The NRST applies in addition to the general land transfer tax in Ontario and will be effective as of April 21, 2017. Unregistered dispositions of a beneficial interest in residential property by a foreign entity or taxable trustee will also be subject to the NRST. Any binding agreements of purchase and sale signed on or before April 20, 2017 are not subject to the NRST. 

The NRST applies to the transfer of land which contains at least one and not more than six single family residences. However, the NRST does not apply to other properties such as multi-residential rental apartment buildings with more than six units, agricultural land, commercial land or industrial land. For mixed use property, the tax will apply to the value of the residential portion of the property. An exemption or rebate of the NRST may be available in certain limited situations. For example, where an individual buys a home in Ontario while on a work visa, they can apply for a rebate once they have worked full-time in Ontario for a continuous period of one year since the date of purchase. It is important to note that all transfers registered on or after April 21, 2017 must contain a statement expressly acknowledging that consideration has been given to the application of the NRST.  

The tax will apply to co-ownership arrangements on the full value of the property transferred even if only one of the transferees is a foreign entity or taxable trustee. Also, each transferee is jointly and severally liable for any NRST payable, including those that are not foreign entities or taxable trustees.

The Ontario NRST is similar to the British Columbia 15% property transfer tax introduced in 2016 to apply to residential real estate transactions in the Greater Vancouver Area.

Actions Designed to Protect Renters

The government has also introduced rent control measures that will apply to all private rental units in Ontario, including those built after 1991.  Also included in the Plan is legislation that will strengthen the Residential Tenancies Act to further protect tenants and will include the development of a standard lease with explanatory information. These changes will apply to all of Ontario. 

Actions Designed to Increase Housing Supply

Several measures were introduced in the Plan that are geared towards increasing the housing supply in Ontario, including:

  • Establishing a program to leverage the value of surplus provincial land assets across the province to develop a mix of market housing and a new, permanent, sustainable and affordable housing supply.
  • Introducing legislation that would allow municipalities to introduce a vacant homes property tax to encourage property owners to sell unoccupied units or rent them out.
  • Ensuring that property tax for new multi-residential apartment buildings is charged at a similar rate as other residential properties.
  • Introducing a targeted $125-million, five-year program to further encourage the construction of new rental apartment buildings by rebating a portion of development charges.
  • Providing municipalities with the flexibility to use property tax tools to help unlock development opportunities, such as a higher property tax rate on vacant land that has been approved for housing development. 

Other Actions to Protect Homebuyers and Increase Information Sharing

Also included in the Plan is a commitment to tackle practices that may be contributing to tax avoidance and excessive speculation in the housing market such as “paper flipping.”  Details were not announced on specific actions under consideration.  In addition, the government promises to work with the real estate profession and consumers and review the rules real estate agents are required to follow to ensure that consumers are fairly represented in residential real estate transactions. This will include educating consumers on their rights, particularly on the issue of one real estate professional representing more than one party in a residential real estate transaction.

It was also noted that the Ontario government plans on partnering with the federal government and the Canada Revenue Agency to explore more comprehensive reporting requirements so that correct federal and provincial taxes, including income and sales taxes, are paid on purchases and sales of residential real estate in Ontario.  Although not specifically addressed, this could include a closer review of whether homeowners are flipping homes, which could result in gains being taxed as income rather than capital gains (and in particular, capital gains eligible for the principal residence exemption).

Finally, the government promises to work with municipalities and develop new provisions that will include requiring that municipalities consider the appropriate range of unit sizes in higher density residential buildings to accommodate a diverse range of household sizes and incomes.

Summary

The Ontario government has released a broad set of initiatives that will have a significant impact on the Ontario residential real estate market.   These changes could have a significant impact on residential real estate investors, purchasers, owners and developers.  If you have any questions about the Plan and how it may impact you, contact one of our BDO experts or your local BDO advisor.

Dave Walsh        
Tax Service Line Leader    
 
Stan Zinman
International Tax Services Leader    
Real Estate Industry Tax Leader    
   
Rachel Gervais
GTA Tax Service Line Leader    
Salmaan Alvi
National Real Estate & Construction Leader    

  







1The GGH includes the following regions of Ontario: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Waterloo, Wellington and York geographical areas.

2Foreign entities are defined as:

•    A foreign national - an individuals who is not a Canadian citizen or permanent resident of Canada
•    A foreign corporation - corporation that is:

  • not incorporated in Canada;
  • is incorporated in Canada but is controlled by a foreign national or other foreign corporation (unless the corporation has shares that are listed on a Canadian stock exchange); or 
  • is controlled directly or indirectly by a foreign entity related to section 256 of the Income Tax Act (Canada)

Taxable trustees are defined as: 

•    A foreign entity holding title in trust for beneficiaries, or
•    A Canadian citizen, Canadian permanent resident, or a corporation holding title in trust for foreign entity beneficiaries.


The information in this publication is current as of April 21, 2017. 

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.