On October 24, 2022, the Ontario government announced that it would raise the non-resident speculation tax (also referred to as the foreign speculation tax in Ontario) from 20 per cent to 25 per cent on October 25, 2022. This change makes Ontario’s tax rate for non-residents the highest in Canada to discourage foreign speculation. In addition, the Ontario government announced a larger plan to assist with Ontario housing.
You might be wondering: what is the effect of foreign speculation tax in Ontario? This post will introduce the foreign speculation tax and provide clarification on the changes coming to Ontario’s real estate market.
What is the Foreign Speculation Tax?
The foreign speculation tax applies to purchases or acquisitions of interest in residential property located in Ontario by non-residents. A non-resident is classified as a foreign national (i.e., a person who is not a Canadian citizen or permanent resident), a foreign corporation, or a taxable trustee.
History of the Foreign Speculation Tax
While Ontario’s foreign speculation tax is not a new concept, we’ve seen incremental increases in the tax rate over the past few years. Before March 30, 2022, non-residents paid a 15 per cent tax on residential property purchased or acquired in the “Greater Golden Horseshoe Region” of Southern Ontario. Between March 30, 2022, and October 24, 2022, the foreign speculation tax rate was increased to 20 per cent and applied to property purchased or acquired anywhere in Ontario.
Note that if you entered into an agreement of purchase and sale or an assignment on or before October 24, 2022, and you must pay the foreign speculation tax, the 20 per cent tax rate will still apply. The 25 per cent tax rate applies to contracts or assignments entered on or after October 25, 2022.
How is the Foreign Speculation Tax Calculated?
The foreign speculation tax applies to the amount paid for the residential property being transferred. So, for example, if a non-resident purchases a residential property for $2,000,000, they will have to pay an additional $500,000 (25%) for the foreign speculation tax.
Are There Exceptions to the Foreign Speculation Tax?
A non-resident may not have to pay the foreign speculation tax in certain circumstances. An exemption may apply in the following scenarios:
- The purchaser is a nominee under Ontario’s Immigrant Nominee Program at the time they purchase the property;
- The purchaser is a protected person with refugee protection; or
- The purchaser is the spouse of a Canadian citizen, permanent resident, nominee, or protected person.
Do Non-Residents Have to Pay Other Taxes on Property?
Yes – in addition to the foreign speculation tax, non-residents must pay the land transfer tax. This tax applies to anyone who purchases or acquires a beneficial interest in land. The amount of money you will pay for the land transfer tax depends on the amount paid for the property, as follows:
- 0.5% (for amounts up to and including $55,000)
- 1% (for amounts above $55,000, up to and including $250,000)
- 1.5% (for amounts above $250,000, up to and including $400,000)
- 2% (for amounts above $400,000)
- 2.5% (for amounts above $2,000,000 if the land includes one or two single-family homes)
For more information on the Land Transfer Tax, review the Ontario government’s publication on Land Transfer Tax.
The Ontario Government’s Housing Strategy
The foreign speculation tax was raised in conjunction with an expansive action plan, including legislation, as part of a strategy to increase the supply of housing in Ontario. Some of these initiatives include:
- Proposed changes to the Planning Act, RSO 1990, c P.13
- Allowing for up to three residential units to be built on land zoned for only one home
- Moving toward planned minimum density targets near major transit hubs
- Reducing fees on new home construction
- Removing site plan control requirements for projects with less than 10 residential units
- Proposed changes to the Ontario Land Tribunal Act, 2021, SO 2021, c 4, Sch 6, to streamline processes and resolve cases more efficiently
- Proposed changes to the New Home Construction Licensing Act, 2017, SO 2017, c 33, Sch 1 that will increase maximum financial penalties by double
- Proposed changes to the Ontario Heritage Act, RSO 1990, c O.18 to strengthen the criteria for heritage designation and promote sustainable development
- Launching consultations to
- Standardize municipal bylaws prohibiting or regulating the demolition or conversion of residential rental properties
- Address land speculation with industry partners and potential further regulatory changes under the New Home Construction Licensing Act, 2017, SO 2017, c 33, Sch 1
- Reduce property taxes on apartment buildings
- Developing more affordable and purpose-built rental housing in Ontario, including a new program to build homes in “mixed-income” communities to help support homeownership goals
- Reducing taxes on affordable rental housing
- Developing a policy framework to address vacant homes
For a full discussion of the proposed changes, read the Ontario government’s Backgrounder on the More Homes Built Faster Act, 2022.
What These Changes Mean for Ontarians
With news of significant changes coming to Ontario’s housing market along with the changes to the foreign speculation tax, you’re probably wondering what the future holds. While these changes will likely significantly impact the Ontario housing market, it will be some time before many of these initiatives are implemented. Rest assured that we will continue to update you on this situation as developments unfold.
For the time being, purchasers who are not Canadian citizens or permanent residents will need to carefully consider whether they are a “non-resident” before acquiring an interest or entering a contract to purchase a property. Additionally, it’s always important to consider the tax implications of your purchase – such as the applicable Land Transfer Tax rate – before committing. If you are unsure whether you need to comply with Ontario’s foreign speculation tax, or want to learn more about the applicable taxes on residential real estate, be sure to speak with an experienced real estate lawyer well in advance to ensure you understand the tax implications of any potential real estate purchase.
Contact Residential Real Estate Lawyers in Ottawa and Arnprior Representing Clients Across Ontario
At Tierney Stauffer LLP, our residential real estate lawyers have over 70 years of combined experience representing clients in the purchase, sale, or mortgage of a property. It is our goal to provide you with timely service efficiently and cost-effectively. Whether it is purchasing your first home, selling a condo, or refinancing a property, our residential real estate team is ready to assist. Contact us online or at 1-888-799-8057 to determine how we can assist you.