On April 20, 2017, the Government of Ontario introduced a comprehensive set of sixteen proposed measures under the Fair Housing Plan, intended to make housing more affordable for homebuyers and renters, increase housing supply and bring stability to the real estate market. Among the most significant of the proposed measures are a 15% non-resident speculation tax and an expansion of rent control to all private rental units in Ontario.
The proposed 15% non-resident speculation tax (“NRST”) will apply to the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe (“GGH”) by individuals who are not Canadian citizens or permanent residents or by foreign corporations and taxable trustees. The NRST will apply in addition to the Ontario land transfer tax and the municipal land transfer tax in Toronto.
Upon the enactment of legislation, the NRST will be effective as of April 21, 2017. Binding agreements of purchase and sale entered into on or before April 20, 2017 are not subject to the NRST. As of the date of writing, the Province has yet to release draft legislation.
Entities Subject to the NRST
The NRST will apply to “foreign entities” and “taxable trustees”.
A “foreign entity” is proposed to be defined as either:
(a) A “foreign national”, being an individual who is not a Canadian citizen or permanent resident of Canada; or
(b) A “foreign corporation”, being a corporation that:
(i) is not incorporated in Canada;
(ii) is incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation, unless the shares of the corporation are listed on a Canadian stock exchange; or
(iii) is controlled directly or indirectly by a foreign entity for the purposes of section 256 of the Income Tax Act (Canada).
A “taxable trustee” is proposed to be defined as either:
(a) a foreign entity holding title in trust for beneficiaries; or
(b) a Canadian citizen, permanent resident of Canada or a corporation holding title in trust for foreign entity beneficiaries.
The inclusion of such entities along the chain of corporate ownership clarifies the recent announcement by the Ministry of Finance regarding certain “prescribed information” required to be submitted by transferees of land containing one to six single family residences (as well as agricultural land), effective as of April 24, 2017. The information required to be submitted include residency, citizenship and permanent resident status, incorporation, corporate ownership and control and beneficial ownership of land.
The NRST will not apply to a purchase made as trustee for a mutual fund trust, real estate investment trust or specified investment flow-through trust.
Types of Property Subject to the NRST
The NRST will apply to the registered or unregistered transfer of land which contains at least one and not more than six single family residences. Examples of land containing a single family residence include detached and semi-detached houses, townhouses and condominium units. The NRST will not apply to transfers of other types of land such as multi-residential rental apartment buildings with more than six units, agricultural land, commercial land or industrial land.
Importantly, the Ministry’s guidance provides that a transfer of multiple condominium units will be treated as separate transfers of land, each unit being considered land containing one single family residence. This would appear to mean that a transfer of more than six condominium units (or all of the units in a condominium building) would be subject to the NRST, even though the transfer of a residential apartment building containing more than six single family residential units would not be subject to the tax.
The NRST will apply to the full value of consideration for the transfer (registered or unregistered) of residential property if any one of the transferees is a foreign entity or taxable trustee. If a transfer of residential property is made to more than one transferee, one of whom is a foreign entity or taxable trustee that acquires an interest in the land, then the NRST would apply to 100% of the value of the consideration for the transfer.
Each transferee will be jointly and severally liable for any NRST payable. If a foreign entity or taxable trustee does not pay the NRST, the other transferees will be required to pay the tax, even if they are Canadian citizens or permanent residents of Canada.
If the land transferred includes both single family residences and non-residential property, the NRST will apply to the portion of the value of consideration attributable to the single family residential component of the land.
Exemptions are proposed for foreign nationals who receive confirmation under the Ontario Immigrant Nominee Program, for refugees and for foreign nationals who acquire property jointly with a spouse who is a Canadian citizen, permanent resident, nominee or refugee.
In addition, rebates of the NRST (with interest) may be available in some circumstances provided certain conditions are satisfied. For example, a foreign national who becomes a Canadian citizen or permanent resident within four years of the date of purchase or is a student enrolled full-time for at least two years from the date of purchase at an “approved institution” or has legally worked full-time in Ontario for a continuous one-year period since the date of acquisition, and has used the property as his or her principal residence during that period, may be eligible for the rebate.
The Government has stated that it will introduce anti-avoidance provisions intended to ensure that the NRST is reported and paid as required. This will include examining circumstances where Canadian citizens or permanent residents of Canada, as taxable trustees, hold property in trust for a foreign entity or are trustees where a beneficiary may be a foreign entity. This will also include preventing the use of multiple conveyances to avoid the NRST. The Ministry’s guidance states that failure to pay the NRST as required may result in a penalty, fine and/or imprisonment.
The Ontario Government has also proposed expanding rent control to all private rental units in Ontario, including those built after 1991. Prior to the proposed changes, the rent control provisions of the Residential Tenancies Act, 2006 (Ontario) did not apply to buildings that had not been occupied for residential purposes before November 1, 1991, including those built after that date.
The proposed measures would limit annual rent increases to the rate posted in the annual provincial rent increase guideline, with the maximum capped at 2.5% annually. Under the proposed changes, landlords would still be able to apply vacancy decontrol and seek above guideline increases where permitted. The Province introduced Bill 124, Rental Fairness Act, 2017 on April 25, 2017 relating to these changes and other amendments to the Residential Tenancies Act, 2006.
The Fair Housing Plan proposes a number of other measures, including:
- Introducing a targeted $125 million, five-year program to further encourage the construction of new rental apartment buildings by rebating a portion of development charges;
- Establishing a program to identify provincially owned surplus lands that could be used for market housing and affordable and rental housing development;
- Introducing legislation to allow the City of Toronto and potentially other interested municipalities to impose a vacant homes property tax to encourage property owners to sell or rent out unoccupied units;
- Reviewing and tackling practices that may be contributing to tax avoidance and excessive speculation in the housing market such as “paper flipping”, a practice that includes entering into an agreement to purchase a residential unit and assigning it to another person prior to closing;
- Partnering with the Canada Revenue Agency to explore more comprehensive reporting requirements so that correct federal and provincial taxes, including income and sales taxes, are paid on purchases and sales of real estate in Ontario; and
- Amending the Residential Tenancies Act, 2006 including developing a standard form of lease and tightening provisions for “landlord’s own use” evictions, as outlined in Bill 124, Rental Fairness Act, 2017.