As housing prices continue to skyrocket in many bustling areas of Canada, some local legislators are attempting to find ways to use well-placed laws to restrict and reduce how rapidly rent and housing prices are rising.
In the case of Toronto, a Toronto foreign buyers tax was recently enacted in addition to a number of other pieces of legislation in an attempt to slow the rising costs that were making it impossible for current residents to buy in the area.
The Ontario foreign buyers tax is currently focused in the Greater Golden Horseshoe area, but all eyes are on the region to see how this type of tax works.
Let’s learn more about the tax itself, who it affects, and what you can do to avoid paying it.
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 Toronto region. The tax requires them to pay an additional 15% tax on top of all other costs associated with the property. Since being imposed, foreign-bought sales in the Toronto region have dropped from over 5% to just over 3%.
Officially titled the non-resident speculation tax (NRST), this tax is often referred to as the Toronto Foreign Buyer Tax.
Why Was This Tax Introduced?
The foreign buyer’s tax Ontario edition was introduced in an attempt to gain control over a housing market that was quickly becoming out of control.
With houses too expensive for anyone living in the area to buy, Toronto enacted a number of changes (including the foreign buyer tax in Toronto) with the goal of slowing down the rising costs.
The tax itself is not intended to dissuade new Canadians or those hoping to move to Canada from buying property. Instead, it is aimed at investors in the Toronto region.
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 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 anyone who is not a citizen or a permanent resident of Canada unless they fit one of the exemption categories. In purchases with more than one person involved, the NRST tax will apply so long as any single individual involved in the purchase is a non-resident of Canada. Some exemptions 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 Buyer Tax Exemption Information
There are some exemptions from this rule for new Canadians and those who wish to make Canada their permanent home.
Some of these 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 citizen or permanent resident, 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 visa to be eligible for a rebate.
Foreign students do not need to pay the 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: A foreign national who jointly purchases residential property with a spouse, who is a Canadian citizen, permanent resident of Canada, nominee or protected person.
Nominee – A foreign national who is nominated under the Ontario Immigrant Nominee Program (nominee) at the time of the purchase or acquisition, and the foreign national has applied or certifies that they will apply to become a 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, every residential purchase made by non-citizens (including foreign corporations) will be taxed by Toronto. It is estimated that the tax only affects 1.5% of foreign buying parties that participate in real estate sales in the Toronto Area.
How Can I Find Out If I Am Exempt From The Tax?
If you are unsure about your 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 Ministry of Finance page about this tax.
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 exemption eligibility, it is best to contact a tax expert or the Ministry of Finance directly.
Both of these parties 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 A Property 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 Properties Are Affected By This Tax?
The tax is to be put on all residential properties in the Greater Golden Horseshoe Region of Toronto. For those unfamiliar with the area, you may not know whether or not the area you are interested in falls in 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
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 the Ontario region.
How Are Prices Affected By The Ontario Foreign Buyer Tax?
The tax applies to all residential properties in the Toronto region. Whether they are newly built condos or old houses, the tax applies if the buying party is a non-citizen or non-permanent resident. 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, housing prices in the Toronto region 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 stressful economy.
Toronto Foreign Buyers Tax FAQs
Can I Buy a 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 NRST and LTT When Buying a Home 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 NRST?
No. As long as you are considered to be a permanent resident of Canada, you are not responsible for paying the NRST regardless of where you are living when you purchase property in Canada.
My Business Partner is Not a Citizen; Do We Have to Pay 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 a House 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 US Taxes On Foreign Property?
Generally speaking, U.S. citizens who purchase property 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 your tax filing.
Know Before You Buy
This foreign buyer tax in Toronto can make a big difference in what you can and cannot afford in Toronto. Even if you plan to become a citizen or permanent resident within the next few years, 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 this region while being invested in. And that is a prize in-and-of-itself.
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