What you need to know about non-resident spec tax and HST

In order to help cool the real estate market and make homes more affordable to residents, the government of Ontario instituted a speculation tax for foreign buyers. It was restricted to certain hot market areas. At least that was the hope. It seems only rising interest rates do that. Ontario believed it needed to do more, so on March 30, 2022, it expanded the Non-Resident Speculation Tax (Spec Tax) rate and area of coverage.

Prior to that date, under the original tax structure, a non-resident buyer would have to pay Spec Tax of 15 per cent of the purchase price. For any agreements signed on or after March 30, 2022, the Spec Tax increased to 20 per cent of the purchase price.

Prior to March 30, 2022, the Spec Tax was applicable only to properties located in the Greater Golden Horseshoe Region in southern Ontario (generally from Peterborough to Niagara). Spec Tax now applies to property purchases in all of Ontario.

Who or what is exempt?

Spec Tax applies only to properties that contain one to six family residences – anywhere from a detached home to a sixplex. Other properties such as commercial properties are exempt.

Second, certain entities are exempt from Spec Tax. The most common exemption we see is for a foreign national who is married to a Canadian citizen or permanent resident, as long as the property will be their principal residence.

HST on new home assignments

Prior to May 7, 2022, some assignments of residential preconstruction properties were subject to HST. If you signed an agreement with a builder with the intent to flip the house or rent it and then went on to assign the purchase agreement prior to the closing date, there would 13-per-cent HST payable on your profit.

On the other hand, if you signed the agreement and your intention was to live in the home as your primary residence, there would be no HST payable on your assignment profits. If at some point before closing, your situation legitimately changed and you needed to assign your agreement, you would still be fine. And then things started to change – Canada Revenue Agency (CRA) decided that for any assignment agreements signed on or after May 7, 2022, HST would apply to all assignments, with no exceptions. In Ontario, this means that 13-per-cent HST will be charged on all assignment sale profits.

Assignors and assignees should know that it is up for negotiation as to which party pays the HST; will the assignee pay the assignment fee plus HST or will HST be included in the assignment fee?

Assignees should also be aware as a rule the builder will not give any HST rebates on assignments again, even if the assignee is eligible for it. This means up to $24,000 will be payable by the assignee to the builder on final closing. While an assignee can always apply for the rebate directly themselves, an additional $24,000 on closing may be a deal breaker to some.

There you have it: The government has limited non-residents even more, and made it even harder to flip properties. Interest rates are steadily increasing, and our market is slowing and returning to a solid value foundation. If you are looking to buy, keep your head up, don’t rush, watch the values until they stabilize and interest rates level out, find a good lawyer you can trust, qualify for a mortgage and then buy what you can afford.