Recently the Government of Ontario followed the heels of the British Columbia Government by introducing a “non-resident speculation tax” (“NRST”). The NRST will apply to the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe (the “GGH”) by individuals who are not Canadian citizens or permanent residents or by foreign corporations or taxable trustees. The quantum of tax is equal to 15% and it will apply to the full value of consideration paid for the transfer (registered or unregistered) of residential property if any one of the transferees is a “foreign entity” or “taxable trustee”.
The introduction of the NRST was part of the Government’s Fair Housing Plan, the purpose of which was stated to be: to make housing more affordable for homebuyers, increase housing supply and bring stability to a GGH real estate market. Presumably these three goals were seen to be interrelated, in the sense that the instability of the current market is resulting in limited supply or a lack of affordable housing.
In the meantime, there will be added legal compliance required on all residential real estate transactions. Leaving aside the tax liability itself, the added compliance will result in additional expense to sellers and buyers of residential real estate in the GGH. The corollary will likely be GGH sellers will end up with less opportunity to earn the greatest potential return on their single biggest investment.
In addition, a review of the forms required to be completed for purposes of the NRST suggests that reliance on the information provided may not be limited to the provincial government but may also be relied upon by the federal government. Specifically, questions are included with respect to whether the transferee intends to occupy the housing unit as their “principal residence”. While no definition of this term has yet been provided, given the recent focus on the principal residence exemption for federal income tax purposes, we may yet see interaction between the two levels of government in respect of this information.
Only time will tell as to whether the measures will have the intended effect. In the meantime, if you are interested in reading more about the NRST, please see the Bulletin prepared by my colleagues.