A Quick Explanation of NRST

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What Is NRST (Non-Resident Speculation Tax)?

The NRST is a 25% tax applied to the purchase price of residential properties anywhere in Ontario, if the buyer is a foreign national (individuals who are not Canadian citizens or permanent residents of Canada).

It is calculated as 25% of the value of consideration, in other words, the amount that is actually paid for the property.

This tax is in addition to the standard Land Transfer Tax (LTT).

When Does NRST Apply?

The NRST applies to the transfer of designated land, which includes residential properties with at least one and not more than six single-family residences.

This means it applies to:

• Detached homes, semi-detached homes, townhouses, and condos.
• Properties with multiple units, including duplexes, triplexes, fourplexes, fiveplexes, and sixplexes.
• Cottages, cabins, and other similar seasonal residences designed as family homes, regardless of year-round habitation.
• Standalone purchases of parking units and storage units in condominium complexes.

It does NOT apply to:

• Commercial land.
• Multi-residential properties with seven or more units.
• Industrial land.
• Agricultural land.

Who Pays it?

The NRST applies to the full purchase price of a residential property if any one of the buyers is a foreign national, regardless of the percentage of ownership.

Example:
Sarah, John, and Alex purchase a home for $1,500,000. Sarah and John are Canadian citizens acquiring 33% ownership share each, but Alex is a foreign national acquiring 34% ownership share. Even though only Alex is a foreign buyer, the NRST applies to the entire purchase price of $1,500,000, resulting in a tax of $375,000.

The NRST is not prorated based on the foreign buyer's share of ownership; it applies to 100% of the property value if any transferee is a foreign entity and each buyer is liable.

Exemptions

Foreign nationals may qualify for an exemption or rebate if they meet certain criteria. Common scenarios include:

1. Permanent Residents: If the buyer becomes a permanent resident within four years of purchase, they can apply for a rebate (with conditions).
2. Spouse of a Canadian Citizen or Permanent Resident: If one spouse is a Canadian citizen or PR and they are both buying the property together, NRST does not apply.
3. Nominee or Protected Person: Individuals recognized under the Ontario Immigrant Nominee Program, or the Immigration and Refugee Protection Act may be exempt under certain conditions.

Relation to the Foreign Buyer Ban

We've previously discussed the foreign buyer ban (or formally the federal prohibition on the purchase of certain residential properties by non-Canadians).

This prohibition is distinct from Ontario’s NRST and operates independently.

Even if a person qualifies for an exception under the foreign buyer ban, they may still be subject to Ontario’s NRST - unless they meet the exemption criteria for the tax as well.

The foreign buyer ban focuses on eligibility to purchase, while NRST applies as a tax on the transaction itself.

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The NRST is a hefty 25% that could derail a deal. Being proactive and knowledgeable about NRST ensures you offer maximum value to your clients and avoid unnecessary headaches.

Ask Early Questions: Determine if your client could be subject to NRST by asking about their residency status upfront.

Flag Exemptions or Rebates: If they might qualify for an exemption or rebate, make sure they understand their options and deadlines.

Partner with a Lawyer: Encourage your clients to work with a real estate lawyer early on to ensure compliance and avoid surprises at closing.