Toronto's Non-Resident Speculation Tax: What Are The Impacts?

In April of 2017, the province of Ontario unveiled a new tax—the Non-Resident Speculation Tax (NRST)—aimed at slowing Toronto’s property market.

Average property selling prices in the Greater Toronto Area (GTA) rose by around a third in the past year according to the Toronto Real Estate Board. In March of 2017 alone, property prices rose at their fastest rate on record.

Policymakers believed “rampant speculation” was driving prices ever higher in this, Canada’s most populous, area. The authorities credited much of the boom to investment by overseas buyers. They hoped the introduction of the new tax -- part of an extensive package of planning and legal measures to cool the housing market -- would act as a disincentive to prospective investors.

Who is affected by Toronto's NRST?

For non-residents of Canada, and employees on international assignments seeking to buy a home in the Greater Toronto Area (GTA), the introduction of the NRST means buying a home has just become even more expensive—at least for the short-term.

This property purchase levy covers all of the Greater Toronto Area, its suburbs and the Greater Golden Horseshoe (which includes the following geographic areas: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and Yorkz.) Encompassing some of the most popular locations for employees relocating, this area includes Toronto, Mississauga, Oakville, Burlington, Hamilton, Markham and Oshawa. It is therefore likely a number of relocating employees will be affected by the tax. 

How much does the NRST add to the cost of buying a home?

The NRST adds an extra 15% to the total cost of buying a home in the GTA. It takes the total tax payable to a little over 18% on an average-priced C$1,000,000 property in Toronto, once provincial and municipal land transfer fees are taken into account. 

Who is exempt from the NRST?

The good news is that in some cases rebates look to be possible in the medium term. There are also exemptions from the NRST if either spouse purchasing the property is a Canadian citizen and for people who have refugee status or receive confirmation under the Ontario Immigrant Nominee Program:

• If one of the purchasers (either spouse) is a Canadian citizen, then the tax does not apply
• After working in Canada on a full-time basis for a continuous period of one year since the date of purchase, the employee can apply for a rebate of the tax paid
• After obtaining their permanent residency and within four (4) years of the date of the purchase, the employee can apply for a rebate of the tax paid
• The employee and spouse must live in the home as their principal residence in order to qualify for the rebate
• The ability to apply for a rebate expires after 4 year

How can we limit the impact of the NRST on relocating employees?

The NRST has prompted immediate considerations for relocating employees and their employers, and communication of the changes is key.

After informing relocating employees of the tax, companies might consider what financial support or advice could be appropriate for relocating employees subject to the NRST. For example, will employers cover the new home purchase tax or advise people to rent until permanent residency is confirmed?

Companies that are able to offer some financial support are also likely to need to consider and clarify expectations around any future NRST rebate. For example, who will track and administer the process? A further consideration is how repayment agreements could be enforced if an employee leaves the company.

Relocating employees are also likely to benefit from tax, visa and immigration service providers’ advice on NRST. This could include if and when they will ultimately qualify for a rebate. From a tax perspective, the timing of the property purchase may also be important.

All these factors can be communicated at the pre-departure stage, during property consultations, and on the assignment itself through tax and key-date tracking.

How might the NRST impact accommodation considerations?

Data reflecting the immediate impact of NRST suggests its introduction has started to achieve the goal of taking some of the heat out of the GTA property market.

Realtors are reporting more properties coming to market, balancing out demand, and sales volume is also down. If these trends continue, they could ultimately reduce the NRST burden on overseas employees looking to buy a home in the GTA, and make property ownership more affordable.

Interestingly, in British Colombia, Vancouver introduced a similar tax in August 2016 to put the brakes on its buoyant property market. Here, prices fell 16.7% in August alone, with some signs now of modest growth returning. Ontario's NRST offers more exceptions (as outlined in the section above), which may potentially make the scale of its impact more modest.

The NRST's introduction could also prompt relocating employees now potentially priced-out of the property market to consider renting a home, especially if advised to by their employers. Another measure in the same package as the NRST is part of is to extend rent control to all private rental units in Ontario, including those built after 1991, which were previously excluded.

Increasing the appeal of rental accommodation could again reduce the demand for real estate, and create additional downward pressure on property prices. However, this could also further squeeze the already-tight rental market in the short term while a five-year, C$125-million incentive program to encourage new building for rental apartments comes on-stream.

In any case, Premier of Ontario, Kathleen Wynne, said further intervention has not been ruled out if the GTA's housing market continues its recent growth despite the new measures.

While the full impact of the NRST’s introduction becomes clearer, we will continue to work closely to inform, consult and support clients in response to the changes, and maintain our focus on successfully meeting the needs of relocating employees.

This article/blog is provided by SIRVA solely for informational purposes.  SIRVA is not providing legal advice, opinions or recommendations with respect to the tax, its requirements, application, impact or enforcement.  Because each situation is different, expert legal and tax advice is recommended.  SIRVA is providing a general review of key areas of attention based upon the governmental releases and publications on the subject matter, and SIRVA’s experience in the market. To the extent possible, SIRVA endeavors to locate and obtain reliable and accurate information. However, neither SIRVA nor its respective associates, agents and representatives shall be deemed to make or have made any representations as to the accuracy or completeness of any information provided.  SIRVA makes no representations or warranties concerning the tax applicability, tax effectiveness or its consequences or impact, and SIRVA waives any and all obligation and responsible for any tax liability resulting from any reliance or action taken based on this information.