Ontario introduces a “Non-Resident Speculation Tax”
The Ontario Ministry of Finance has released a summary of its proposed 15% tax on foreign real estate purchasers. The principal announced features are:
- The 15% tax applies effective April 21, 2017 to the value of consideration for the transfer (including a beneficial transfer only) of a residential property in the “Greater Golden Horseshoe” where any of the transferees (e.g., a co-owner) is a foreign entity or taxable trustee.
- In approximate terms, the Greater Golden Horseshoe extends from Simcoe County (e.g., Midland but not Gravenhurst) down to the Niagara Region and Haldimand County on Lake Erie, and from the Waterloo Region to Peterborough and Northumberland Counties.
- A residential property means a real estate property containing up to six family residences (i.e., larger apartment buildings are excluded), and includes residential condo units (irrespective of the number purchased).
- A foreign entity is a “foreign national” or a “foreign corporation.”
- A "foreign national" is an individual who is not a Canadian citizen or permanent resident as defined in the federal Immigration and Refugee Protection Act.
- A “foreign corporation” includes not only corporations incorporated outside Canada but also Canadian-incorporated corporations which are subject to de facto control (as defined for federal income tax purposes) by a foreign entity – and also Canadian-incorporated corporations which are not listed on a Canadian stock exchange and which are “controlled…in part” by a foreign national or other foreign corporation.
- A “taxable trustee” is a Canadian citizen, permanent resident or corporation holding title in trust for foreign entity beneficiaries, or a foreign entity holding title in trust for anyone.
- The tax does not apply to a purchase made as trustee for a mutual fund trust (including a REIT or “SIFT” trust).
- There also are narrowly-cast exemptions re personal use by foreign nationals within the Ontario Immigrant Nominee Program or refugees – as well as rebate provisions re foreign nationals who subsequently (within four years) become Canadian citizens or permanent residents, who are full-time Ontario students for the following two years or who legally work full-time in Ontario throughout the following year.
- The legislation, when drafted, will contain anti-avoidance provisions whose scope at this point is unclear.
- Although the Teranet system is not yet set up to collect the new tax, in the meantime all transfers registered after April 20 (and all reporting of beneficial conveyances) must contain a statement acknowledging that consideration has been given to the application of the new tax, and the tax must be paid directly to the Ministry of Finance (purportedly even before the legislation is drafted or passed).
There are various uncertainties in the absence of draft legislation or administrative guidance including:
- Would sequencing partnership purchases minimize the tax – for example if a partnership with 100% Canadian partners purchases on Day 1 and on Day 2, a non-resident subscribes for a 1% partnership interest, would this limit the 15% tax to 1% of the property value?
- Are foreign REITs exempted?
- What is meant by the concept of a corporation that is controlled "in part” by a foreign national or corporation? Is this referencing the income tax concept of membership in a control group?
The proposals (which also describe expanded residential rent control measures) state that Ontario will “empower Toronto and potentially other interested municipalities to introduce a tax on vacant homes to encourage owners to sell or rent unoccupied units.”
Neal Armstrong. Summaries of Ontario Ministry of Finance webpage entitled “Non-Resident Speculation Tax” 20 April 2017 and of Ontario Press Release dated 20 April 2017 and entitled “Making Housing More Affordable” under Land Transfer Tax Act, s. 2(1).