Toronto's new tax on foreign purchasers

Effective January 1, 2025, the City of Toronto (“City”) has implemented a 10% tax on the purchase of residential properties by foreign entities, including individuals and corporations, that do not reside in Canada. This tax is payable on the closing date, meaning the same day that funds are exchanged and title to the property is transferred.

The Municipal Non-Resident Speculation Tax (“MNRST”) is a new measure which adds to the existing provincial and federal initiatives. In 2017, the Ontario government introduced the Non-Resident Speculation Tax (“NRST”) which imposes a 25% tax on any foreign national purchasing a home in Ontario.  As noted above with the MNRST, the NRST is also payable on the closing date.

Later, in 2022, the Canadian government introduced the Prohibition on the Purchase of Residential Property by Non-Canadians Act, which imposes a ban on foreign buyers from purchasing residential homes in certain parts of Canada. Currently, the federal government ban on foreign buyers purchasing homes in Canada is set to expire on January 1, 2027.

The municipal, provincial, and federal legislative schemes are all designed to try and disincentivize, if not prohibit, foreign buyers from purchasing residential properties. 

The MNRST applies to the transfer of land containing at least one and not more than six single-family residences. This includes properties like detached homes, semi-detached homes, townhouses, and sixplexes. The tax also applies to residential condominium units, including parking and storage units in residential condominiums.

Other properties, like cottages, which may only be habitable for part of the year, if located in Toronto, are subject to both MNRST and NRST; if they are located outside of Toronto, then only NRST applies.

As noted above, however, not all residential properties are subject to the tax. For example, the MNRST and NRST do not apply to properties which contain apartment buildings, provided the apartment building has more than 6 units.

Exemptions that apply to the provincial NRST also apply to the City’s MNRST. For instance, a permanent resident or a spouse of a Canadian citizen is exempt from the MNRST.   

Certain foreign nationals may also be eligible for a rebate of the MNRST of the tax they paid on the closing date. For instance, a foreign national who becomes a permanent resident of Canada within four years of purchasing their home may be eligible for a rebate.

It is important to note that to be eligible for rebates or exemptions certain additional conditions must be met. These are (i) the purchaser makes the home their principal residence within 60 days of the purchase; and (ii) the transfer of ownership is registered on title, meaning the public record is updated in the provincial registry with ServiceOntario.

To apply for a rebate after purchasing a home, a purchaser can submit an affidavit along with supporting documentation which includes (i) the registered deed showing the transfer of property, (ii) the agreement of purchase and sale, and (iii) proof that the purchaser lived in the home within 60 days of purchase. In the case of an individual who becomes a permanent resident after purchasing their home, a copy of the individual’s Permanent Resident Card or other documentation issued by the Canadian government must also be provided.

Non-resident buyers should be prepared for the additional costs imposed by the various levels of governments in relation to the purchase of a residential property.

In the City of Toronto, all purchasers of property, regardless of their residency status, are already required to pay both provincial and municipal land transfer tax. Now, in addition to the existing land transfer taxes, non-resident purchasers will also be required to pay the NRST and MNRST which will significantly increase the cost of a purchase for all non-residents.

Prospective buyers, especially foreign buyers and newcomers to Canada, looking to purchase a home in Canada should closely consider the financial implications of the measures instituted by the municipal, provincial and federal governments.

Prospective buyers looking to purchase a home in Toronto, should assess how the MNRST can impact their purchase. Additionally, potential buyers should find out in advance if they are eligible for any rebates or exemptions. This could have a significant impact on the ultimate cost of purchasing a home.

Before signing an agreement of purchase and sale, buyers should consult with their real estate professional to determine how this, or any other tax, may impact their purchase.

If you have any questions about how the NRST, MNRST, or other land transfer-related taxes, may impact the purchase of your new home in Ontario, you can contact the Real Estate group at KPMG Law LLP.