Last week, Kormans LLP brought you the breaking news that the Government of Ontario was updating the Non-Resident Speculation Tax (“NRST”). This week, as promised, we are back with more information!

This week, we discuss the transitional provisions for these new rules. But first, a reminder of the changes, effective March 30, 2022:

1. NRST increased from 15% to 20% of the total purchase price
2. NRST will now apply province-wide, not just in the Greater Golden Horseshoe (“GGH”) region
3. Eliminated the rebates for international students and foreign nationals working in Ontario

Transitional Provisions for the 15% to 20% Increase:

This increase will not apply to Agreements of Purchase and Sale (“APS”) and Assignments of APS signed on or before March 29, 2022. The good news is that most Buyers will now have some advance notice of these changes.

However, it is critical to note that if on final closing the property is conveyed to any Foreign Entity or Taxable Trustee that did not sign the APS or Assignment of APS (i.e. pursuant to a Direction re Title) on or before March 29, 2022, the increase to 20% will apply. For example, if an APS was signed March 28, 2022, and on May 15, 2022 (closing), the Foreign Entity Buyer directs title to their property to another Foreign Entity Buyer, the higher 20% rate will apply.

This rule will not apply if the property is directed to a spouse who is a Foreign Entity or Taxable Trustee. The definition of a spouse for the purposes of NRST is the same as for Land Transfer Tax: #1 Cohabiting for a period not less than 3 years, or #2 in a “relationship of some permanence”, if they are parents of a child as defined in Children’s Law Reform Act.

To make it easier to understand, think of it this way: you pay NRST on closing, so if the person closing was not the same person that signed the original APS, they do not get the protection of the transitional provisions, and the 20% rate will apply.

Transitional Provisions for Territory Subject to NRST:

NRST will not apply to APS or Assignments of APS signed on or before March 29, 2022, for property outside of the GGH.

For properties within the GGH, if you signed your APS or Assignment of APS on or before March 29, 2022, there will be no change for you. However, if you signed your APS or Assignment of APS on or after March 30, 2022, the higher 20% rate of NRST will apply to you.

For example, if the Foreign Entity Buyer signed an APS for a property in Muskoka, on March 29, 2022, the Buyer would not be required to pay any NRST, as they would have the protection of the transitional provision. However, if the Foreign Entity Buyer signed an APS for a property in Muskoka on March 30, 2022, NRST at the rate of 20% will apply.

Transitional Provisions for the Student and Worker Rebates:

Perhaps one of the biggest changes to the NRST was that Foreign Entity Students or Workers on a valid work permit would no longer be entitled to apply for rebates of the NRST.

The NRST transitional provisions will operate such that Students and Workers will still qualify for the Rebates (only for properties within the GGH where NRST was paid on closing), if the APS or Assignment of APS was signed (you guessed it!) on or before March 29, 2022. These Students and Workers of course, will still need to meet the other eligibility criteria.

Kormans LLP is here to provide you skilled, strategic, and experienced advice to help you navigate these changes as they come.