On April 20, 2017, the Ontario government unveiled its Fair Housing Plan (“FHP”). Pursuant to the FHP, the Ontario government will introduce sweeping legislative changes to Ontario's residential real estate sector, with the stated goal of assisting Ontarians with finding "affordable homes, increas[ing] supply, protect[ing] buyers and renters and bring[ing] stability to [Ontario's] real estate market". Legislation to implement the changes announced in the FHP is expected to be passed and come into force shortly.
If passed, the FHP would seek to achieve its goals by implementing 16 different measures. We highlight three key areas of the proposals below.
Non-Resident Speculation Tax
The FHP proposes a 15% Non-Resident Speculation Tax (“NRST”) on homes purchased in the Greater Toronto Area and the Hamilton Area, together with the surrounding regions.
The NRST will apply to all land transfers registered on or after April 21, 2017, where:
- the purchaser is a foreign entity, meaning:
- a foreign national, being an individual who is not a Canadian citizen or permanent resident of Canada; or
- a foreign corporation, being a corporation that is:
- not incorporated in Canada;
- incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation, unless the shares of the corporation are listed on a Canadian stock exchange; or
- controlled directly or indirectly by a foreign entity for the purposes of section 256 of the Income Tax Act (Canada)
- the land that is being conveyed contains at least one and not more than six single family residences (and so does not apply where the property is a multi-residential rental apartment building with more than six units, agricultural land, commercial land or industrial land);
- the agreement of purchase and sale was entered into after April 20, 2017; and
- one of certain other limited exemptions applies.
Teranet, the electronic land registration system for Ontario, is currently not set up to collect the NRST. In the interim, purchasers are required to pay the NRST, along with the Land Transfer Tax, directly to the Ministry of Finance. Only after these taxes have been paid and accepted by the Ministry of Finance can the land transfer be completed. This will add an extra step to closings, and will need to be attended to in advance of a closing.
Certain foreign nationals who are required to pay the NRST may be entitled to a rebate, with interest, if any of the following apply:
- the foreign national becomes a Canadian citizen or permanent resident within four years of the purchase;
- the foreign national is a student enrolled full-time for at least two years from the date of purchase at an Ontario university or college; or
- the foreign national legally works full-time in Ontario for a continuous one-year period following the date of the purchase.
Changes to the Residential Tenancies Act
The FHP proposes changes to the Residential Tenancies Act, which provides for regulation of residential rental units in Ontario.
Of particular note are:
- the proposed expansion of rent control, being the restrictions imposed upon landlords in respect of allowable increases in rent imposed upon existing tenants. The proposed expansion would result in rent control applying to all residential rental units in Ontario, and not just to residential units that were built during or before 1991; and
- a tightening of provisions related to “landlord’s own use” evictions (i.e., the provisions that allow a landlord to terminate a tenancy at the end of its term if he or she or a close relative intends to occupy the unit).
Empowering municipalities to tax vacant homes
The FHP proposes to empower the City of Toronto, and potentially other municipalities in Ontario, to introduce property taxes on vacant homes, the goal being to motivate property owners to either sell or rent out vacant homes. The FHP also indicates that the Ontario government is considering legislation to empower municipalities to impose higher taxes on vacant land that has been approved for new housing.
We will monitor the FHP as it develops. If you have any questions, please do not hesitate to contact any of the members of DLA Piper Canada’s Toronto Real Estate Group.