Toronto's Proposed Municipal Non-Resident Speculation Tax

By Puneet Shroff

Toronto is considering implementing a new tax measure that could significantly affect foreign buyers interested in the city's residential real estate market. The proposed Municipal Non-Resident Speculation Tax (MNRST) is an initiative aimed at cooling the housing market by targeting international speculators who contribute to rising property prices.

Understanding the MNRST

The MNRST is designed to complement the existing Non-Resident Speculation Tax (NRST) at the provincial level. Here are the key aspects of this proposed tax:

• Rate: The tax would impose an additional 10% on the purchase price of residential properties by non-resident foreign buyers, which would be in addition to the existing 25% levied by the province.
• Objective: Its primary goal is to preserve the residential housing supply and maintain affordability by discouraging speculative purchases by those who do not plan to live in the property.
• Implementation Date: If approved, the tax would take effect in January 2025.

Impact on Real Estate

This municipal tax is expected to work alongside other land transfer taxes to deter speculative buying in Toronto's real estate market:

• Speculation Deterrence: By making speculative investments less attractive, the MNRST aims to lessen the pressure on housing prices.
• Revenue Generation: Although not the primary goal, the tax could generate the City of Toronto an estimated $15 million in its first year.
• Provincial Tax Success: Since the introduction of the provincial NRST in Ontario in 2017, over $1 billion has been collected, with around half from transactions in Toronto.

Exemptions and Rebates

The MNRST will mirror the provincial NRST in terms of exemptions and rebates:

• Permanent Resident Rebate: Foreign nationals could be eligible for a rebate if they become permanent residents within four years of the purchase.
• Property Types Excluded: The tax won't apply to multi-residential buildings with over six units, agricultural, commercial, or industrial land.
• Nominee and Protected Person Exemptions: Those nominated under the Ontario Immigrant Nominee Program or classified as protected persons will be considered for exemptions.
• Joint Purchases: Properties bought jointly with a Canadian citizen, permanent resident, nominee, or protected person will not be subject to the tax.

Phased-Out Rebates

It is important to note that certain rebates offered previously under provincial policy, like those for international students and foreign nationals working in Ontario, were phased out in 2022 and will not be part of the new municipal tax.

Looking Forward

The MNRST comes after a two-year federal ban on foreign buyers, which is set to lift at the end of 2024. City staff have observed a substantial reduction in NRST revenue since the federal ban, indicating the potential impact such measures can have on foreign investment in the housing market.

City council's executive committee is slated to review the MNRST proposal on January 30, with the potential to bring a new dynamic to Toronto's real estate landscape in the coming years.