Diamond and Diamond Hosts Seminar about NRST
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Diamond & Diamond Lawyers Avi Top and Isaac Zisckind were proud to host a seminar on the “NRST” foreign buyers tax at Forest Hill Central. Thank you to all the real estate agents who came out in full force to listen. A special thanks to the Brokers of Record in helping us coordinate this for their team.
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Diamond and Diamond Hosts Seminar about NRST
- 1. FOREIGN RESIDENTS: Recent Changes to the Toronto Real Estate Market ABRAHAM TOP, B.A., LL.B. MANAGING LAWYER OF REAL ESTATE DEPARTMENT 416-256-1600 EXT.800 ATOP@DIAMONDLAW.CA
- 2. Toronto Star- Opinion: Editorial Cartoon, April 18,2017 February 10th, 2017 TheoMoudakis:Biddingwars
- 5. Ontario’s Fair Housing Plan: 16 Steps to encourage cooling off 1. Non-Residential Speculation Tax 2. Rent Control, capped increased 2.5% 3. Changes to legislation regarding evicting tenants 4. Uniform Residential Leases 5. Surplus Land Development 6. Vacant Home Property Tax 7. Equalizing Property Tax Rates: multi-res. buildings & single-family housing 8. Vacant Land Property Tax
- 6. Cont’d: Ontario’s Fair Housing Plan 9. Track Assignments and Flipping Real Estate 10. Readdress Rules governing Real Estate Agents 11. Increased Education for Consumers on Buying and Selling 12. Focus on Elevators and Increased Reliably 13. Expanding Advisory Teams to assist in Gathering Data 14. Larger Builder Programs 15. Control Unit Sizes in high-density Developments 16. Data Collection at Real Estate Acquisition Level
- 7. Non-Resident Speculation Tax (NRST) What is it? 15% tax on the purchase of residential properties by: Non-Canadian citizens; Non-permanent residents; Foreign Corporations; or Taxable Trustees Implemented: April 21, 2017 Property in the “Greater Golden Horseshoe”
- 8. “Greater Golden Horseshoe” Area
- 9. Who is Subject to the NRST? (a) Foreign National: an individual who is not a Canadian citizen or permanent resident (b) Foreign Corporation: a corporation that is: • Not incorporated in Canada; • Incorporated in Canada but controlled in whole or in part by a foreign national or other foreign corporation; or • Controlled directly or indirectly by a foreign entity (c) Taxable Trustee
- 10. Be Mindful of the Pitfalls: General Application of NRST • 15% NRST applies to a transfer of residential property if any one of the transferees is a foreign entity •Consider the following example: • A transfer is made to 4 transferees; only 1 if a foreign entity • The tax applies to the entire value of the transfer
- 11. When a Rebate of NRST is Available (1) Canadian citizenship or permanent residency within 4 years of purchase (2) Student visa, full-time student for at least 2 years from purchase (3) Work permit, continuous full-time employment for 1 year since purchase
- 12. Will NRST Impact Foreign-Buyer Interest? Graphic and data courtesy of CMHC
- 14. Thank you Any questions or comments, please contact me: atop@diamondlaw.ca 416-256-1600 x 800
Editor's Notes
- The real estate market has been a hot topic in the news lately. The huge increases in value for properties and the tactics that buyers are using to successfully purchase a home have received extensive media coverage. We are seeing headlines in the newspapers showing the large price tags on homes; the money that sellers are receiving over their asking price; the use of bidding wars to encourage over-asking offers; and how common it is for sellers to receive many, many offers in a short period of time after listing.
- This graph shows the increase of home prices in the GTA compared to other major cities in Ontario. The graph on the right specifically shows that there has been a huge amount of interest in buying homes in Toronto within the last couple of years and this interest in purchasing homes is accompanied by rising prices of homes.
- These graphs and data were obtained from Canadian Real Estate Association and Toronto Real Estate Board Looking at the graph on the left, we see that from March 2014 to March 2016 (two year period) shows an approximate increase of $130,000 on Toronto Home resale prices. Further, we see that as of January 2017, the resale price on Toronto Homes is approaching the 1million dollar mark The graph on the right shows that there has been a steady percentage growth, year-over-year (Y/Y), for the resale value of Toronto Homes.
- Ontario’s liberal government recently announced the implementation of “Ontario's Fair Housing Plan”. This plan consists of 16 measures that the provincial government hopes will allow for affordability of housing while cooling—or alternatively stabilizing—the housing markets. One measure includes introducing a 15 % Non-Resident Speculation Tax (NRST) - I will expand on the NRST shortly, as it seems to be relevant to today’s topic and something that has been getting a lot of attention lately. Additional measures include expanding rent control to all private rental units, including those built after 1991, and strengthening protections for tenants against sudden, dramatic rent increases. In addition, it would allow Toronto and potentially other municipalities to introduce a tax on vacant homes to encourage owners to sell or rent unoccupied units. The province also intends to work with municipalities and other partners to identify provincially owned surplus lands that could be used for affordable and rental housing development. The Greater Golden Horseshoe area has experienced dramatic price increases in recent months. In my opinion, these previously addressed measures outline what will, in my opinion, becomes the largest discussion points that potential clients will have with us, as their real estate professionals.
- Ontario's Fair Housing Plan includes additional measures, such as: introducing a five-year program to encourage the construction of new purpose-built rental apartment buildings by rebating a portion of development charges. The government also intends to better understand what may be contributing to tax avoidance and excessive speculation in the housing market, such as, *the street term* "paper flipping" -- a practice that includes entering into a contractual agreement to buy a residential unit and assigning it to another person prior to closing. The Fair Housing Plan will also include a new Housing Supply Team of provincial employees to identify barriers to specific housing development projects and work with developers and municipalities to find solutions. Again, these are the 16 measures at a glance, all introduced by the Ontario government in hopes of addressing the issues they have identified in the GTA real estate market.
- NRST- WHAT IS IT? It is a 15% tax on the purchase or acquisition of an interest in in residential property by those who are non-citizens or non-permanent residents of Canada, as well as purchases by foreign corporations and taxable trustees. This was recently implemented: applicable as of April 21, 2017 NOTE THAT: This tax applies in addition to the general land transfer tax in Ontario, and if the property is located in Toronto, the municipal land transfer tax in Toronto will apply as well. Ontario Land Transfer Tax: amounts up to and including $55,000: 0.5% amounts exceeding $55,000, up to and including $250,000: 1.0% amounts exceeding $250,000, up to and including $400,000: 1.5% amounts exceeding $400,000: 2.0% amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%. Toronto Land Transfer Tax Up to and including $55,000: 0.5% Exceeding $55,000 up to and including $400,000: 1.0% Over $400,000: 2.0% How it works administratively: all transfers registered on or after April 21, 2017 must contain a statement expressly acknowledging that consideration has been given to the application of the NRST, this is the duty of the lawyer on the transaction to incorporate when registering the property for their client
- NRST applies to properties located in the Greater Golden Horseshoe area; this map highlights the areas that are subject to the tax Toronto York Brant Dufferin Durham Halton Hamilton Niagara Peel Peterborough Simcoe Waterloo Wellington.
- It is important to know what entities are subject to the NRST: Foreign entity: this is a general term that includes the 2 following: (1) Foreign national: defined in the Immigration and Refugee Protection Act as an individual who is not a Canadian citizen or permanent resident of Canada (2) Foreign Corporation: a corporation that is one of the following Not incorporated in Canada; Incorporated in Canada but controlled in whole or in part by a foreign national or other foreign corporation, unless shares of the corporation are listed on a Canadian stock exchange; or A corporation that is controlled directly or indirectly by a foreign entity for the purposes of s. 256 of the Income Tax Act, this section is long-winded in outlining “Associated Entities” And lastly, while this is beyond the scope of today’s presentation, you should also know that Taxable trustees are also subject to NRST. Taxable trustee is defined as: a trustee that is one of the following: a foreign entity holding title in trust for beneficiaries; or a Canadian citizen, permanent resident of Canada, or a corporation holding title in trust for foreign entity beneficiaries [Lets ask ourselves our own questions: What does that mean?… the following is an EXAMPLE OF TAXABLE TRUSTEE] Bob is a US citizen. Bob’s sister, Sally is a Canadian citizen. In Sally’s will, she names her brother Bob as Trustee to use funds from her estate on her passing to purchase a home in Toronto on behalf of Sally’s son, who is a minor (under the age of 18). Even though This home was purchased on behalf of Sally’s son, who is a Canadian citizen, Bob is a non-Canadian citizen and therefore the purchase will be subject to the NRST- this is regardless of the fact that Bob will not live in this home, that Bob did not use his own money to purchase the home, and that Bob is only holding title on this home on behalf of a Canadian resident (Sally’s son)
- The 15% NRST applies to the entire value of the purchase for a residential property if any one of the transferees is a foreign entity (i.e. a foreign national or a foreign corporation) or taxable trustee Consider the following example and be wary of this when advising: A transfer of a residential property is made to 4 transferees. If 3 transferees are Canadian citizens and only 1 is a foreign entity, the tax would still apply to the ENTIRE value of the property This is regardless of the interest the foreign entity acquires in the property; for instance, even if the foreign entity acquires only 1% interest in the property, and the Canadian citizens collectively acquire 99% interest, the entire value of the purchase will be subject to the 15% NRST. Also note that each transferee is jointly and severally liable for any NRST payable- this means that if the foreign entity denies payment of the NRST/ flees the country and you can no longer locate him, the other transferees- even though they are not foreign entities, are still liable to pay the NRST
- A rebate to the NRST may be available in the following situations: The foreign national becomes a citizen or permanent resident within 4 years of purchase The foreign national is a student who has been enrolled full-time at an approved institution for at least 2 years from purchase; or The foreign national has legally worked full-time in Ontario for a continuous period of 1 year since purchase Again, remember that this is a rebate, and therefore, the NRST will need to be paid upfront at the time of purchase and should any of the following situations listed above take place within the subscribed time period, the client can apply for the rebate by contacting our office Finally, to be eligible for any of the previously mentioned rebate situations, the foreign national must exclusively hold the property or only holds the property with his/her spouse; and must have used the property as their principal residence during the time period
- The big question many of us have is: will the implementation of NRST impact the interest that foreign buyers have on purchasing property in this area? CHART on slide: shows the steady increase of foreign ownership in Toronto from prior to 1990 until 2010 onwards; the left side of the chart shows properties surrounding the Toronto area and the right side of the chart shows data for Toronto Central According to a survey released in April 2017 by the Canada Mortgage and Housing Corporation (CMHC), 10% of new condos being built in central Toronto are now going to foreign buyers; further, there is a large interest by the Chinese buyers in luxury priced properties For instance, property searches on Juwai.com (a popular website dealing with data services for global Chinese consumers) have risen 134% over last year. The total value of all Canadian properties that Chinese individuals made inquiries for, almost tripled to $14.9-billion in 2015 from the previous year, according to Juwai.com. The top city by total value of properties searched was Toronto, where it more than tripled to $7.4-billion. The hopes that the use of NRST will curb the high market prices, ignores recent stats that showed Vancouver’s use of a similar Foreign Buyer Tax, enacted in August 2016, was not as effective as they hoped for. While the tax may have stabilized the market for a short period of time, the Vancouver housing market has continued to steadily rise as it previously had, despite the implementation their Foreign Buyer Tax. Many economists are predicting the same for Ontario’s NRST, and I think as real estate professionals, we shouldn’t be focused on these new changes impacting our volume of business, but rather we should focus on providing the client with options in spite of the implementation of NRST. [source of content: http://www.gordcollins.com/real-estate/toronto-forecast-2017/]
- This chart was obtained from the Hurun Report & Fortune Character Institute This shows the motivation and reasons as to why Chinese individuals invest in Canadian properties Lifestyle: 46% of the world’s luxury goods last year were bought by Chinese investors Emigration: 64% of wealthy Chinese have/are seriously considering emigrating overseas Investment: 42% of China’s High Net Worth Individual’s intend to invest abroad in the next 3 years **Education: 83% of wealthy Chinese intend to educate their children overseas A large portion of Chinese investors choose Toronto as the location of choice- it is a city that has a great reputation for education As we previously discussed, a rebate of the NRST is available if the purchaser is a full-time student We at Diamond & Diamond are excited to implement, along with real estate, the practice of immigration law to assist families who wish to have their children study in Toronto, as well as wish to purchase properties locally for their children to reside, to invest, rent out, or whatever else.