Foreign Investment Restrictions In An Uncertain Real Estate Market
During the last decade or so, the Government of Canada and some provinces, including Ontario, have implemented several measures to address housing affordability and curb speculative investments in residential real estate across the country. Two significant initiatives currently in effect are the Ontario's Non-Resident Speculation Tax (NRST) and the Federal Prohibition on the Purchase of Residential Property by the Non-Canadians Act (the Federal Ban). The NRST and the Federal Ban are complementary but separate legal tools aimed at curbing foreign demand in Canada’s housing market.
Ontario's Non-Resident Speculation Tax (NRST)
The NRST is a provincial tax in Ontario that applies to the purchase or acquisition of residential property by foreign nationals, foreign corporations, or taxable trustees. As of October 25, 2022, the NRST rate is set at 25% of the property's value.
The tax applies to designated land containing at least one and not more than six single-family residences, including detached houses, semi-detached houses, townhouses and condominium units. It also encompasses standalone purchases of parking and storage units in condominium complexes as well as cottages, cabins and other similar structures that are designed for occupation as the residence of a family.
NRST Exemptions
These are upfront exemptions to the NRST, meaning you don’t pay the tax at all when you buy the property — if you qualify. There are 4 types of exemptions:
1. Canadian Citizens and Permanent Residents: no NRST applies, no matter where the buyer lives.
2. Nominees under the Ontario Immigrant Nominee Program (OINP): Buyers are exempt if: (i) they been nominated under OINP at the time of purchase, and (ii) the property is your principal residence.
3. Protected Persons (Refugees): applicable to buyers granted protected person status under Canada’s Immigration and Refugee Protection Act.
4. Spouses of Canadian Citizens or Permanent Residents: If a buyer’s spouse is a Canadian citizen or PR, the buyer will be exempted if the spouses are buying the home together and will live there.
NRST Rebate upon obtaining Permanent Resident Status
Some buyers that had paid the NRST at closing, might be eligible to a rebate (post-closing), if:
They become a permanent resident of Canada within 4 years of the property purchase;
The property has been their principal residence from the date of purchase; and
They applied within 90 days of becoming a PR.
Prior to March 2022, International Students and Foreign Workers were able to apply to the NRST rebate under certain conditions.
Federal Prohibition on the Purchase of Residential Property by Non-Canadians Act
Effective from January 1, 2023, this federal legislation prohibits non-Canadians from purchasing certain residential properties in Canada. The aim is to enhance housing affordability for Canadian residents. The prohibition applies to non-Canadians, defined as individuals who are not Canadian citizens or permanent residents, and foreign corporations.
The definition of a "foreign corporation" plays a key role in both the NRST and the Federal Ban. A foreign corporation is deemed to be one that meets any of the following conditions:
1. It is not incorporated in Canada, or
2. It is incorporated in Canada, but is controlled by:
A foreign national (not a Canadian citizen or permanent resident),
Another foreign corporation, or
A combination of foreign nationals and foreign corporations.
Under the Federal Ban, the definition of “control” was updated in March 2023 to mean 10% or more of the value of equity or voting rights held — directly or indirectly — by non-Canadians. Whereas for purposes of the NSRT, an entity is deemed a foreign corporation, if a foreign national or corporation directly or indirectly holds 50% or more of the voting shares.
Federal Ban Exemptions
Some non-Canadians are still allowed to buy residential property in Canada under specific conditions:
1. International Students: Must meet all of the following:
Enrolled in an authorized learning institution;
Filed income tax returns in Canada for the past 5 years;
Been physically present in Canada for at least 244 days each year for those 5 years;
The property is not more than one unit (no multi-unit buildings);
Purchase price is ≤ $500,000; AND
Must not have purchased any other residential property.
2. Foreign Workers: Must meet all of the following:
Hold a valid work permit or be authorized to work in Canada;
Worked full-time in Canada for at least 3 of the last 4 years;
Filed tax returns for those 3 years;
Can only buy one residential property; AND
Must not have purchased other property previously.
3. Refugees and Protected Persons: people with official refugee status (as defined under Canadian law) are fully exempt and can buy property.
4. Spouses or Common-Law Partners: a non-Canadian can buy a property if they are: (i) the spouse or common-law partner of a Canadian citizen, permanent resident, refugee, or Indian under the Indian Act; and (ii) the purchase is made jointly or for their shared use.
5. Accredited Members of Foreign Missions: diplomats and accredited staff can purchase residential property in Canada for their personal use.
6. Treaty Rights or Indigenous Rights: any individual or group with rights to land under Section 35 of the Constitution Act, 1982 (Aboriginal and treaty rights) is not affected by this law.
How the NSRT and the Federal Ban work together
In Ontario, a buyer must navigate both the federal prohibition and the provincial tax. The Federal Ban prohibits most non-Canadians from purchasing certain residential properties altogether. The NRST, in contrast, does not prohibit, but heavily taxes non-Canadian buyers in Ontario who are still allowed to purchase (e.g., temporary residents - International Students and Foreign Workers) who qualify under exemptions to the Federal Ban).
That is, if someone is allowed to buy under a federal exemption (e.g., an International Student or a Foreign Worker), they may still be hit with the 25% NRST in Ontario, unless they also qualify for an exemption under the provincial rules.
The federal law is the first gate: If a buyer is not allowed to buy, the buyer can't proceed with a purchase. The NRST comes in after a purchase is allowed: If you clear the federal law, Ontario might still tax you. For example, a Foreign Worker in Toronto may be exempt under the Federal Ban. But unless they meet the narrow NRST exemption criteria, they’ll still pay the 25% tax, to which a rebate will be available if the permanent resident is obtained within 4 years.
Criticisms and Projection
When NRST and the Federal Ban came into effect, some economists and real estate professionals argued that the ban is more political than practical, noting that non-resident buyers constitute a small fraction of the housing market. They suggest that increasing housing supply would be a more effective solution to affordability issues.
Today, the Canadian real estate market is navigating a complex landscape shaped by domestic economic factors and international political developments; notably, the fluctuations in the interest rates and the volatile policies of the Trump administration in the United States. Said factors have resulted in recent data indicating a cooling in Canada's housing market.
As of February 2025, the national average home price declined to $668,097, marking a 3.3% decrease compared to the same month in 2024. Seasonally adjusted sales activity also saw a significant decline, with a 10% drop from January 2025 and a 4% decrease year-over-year.
Indeed, in high-demand provinces like Ontario, home price forecasts for 2025 have been revised downward, reflecting muted demand and a market that currently favors buyers. This leaves us with the impression that the current restrictive federal and provincial legislations imposed to foreign investors would be softened or completely eliminated in order to maintain a healthy real estate market in Ontario.
Conclusion
The regulatory measures introduced by the Federal and Ontario Governments were implemented with the intention of improving housing affordability and curbing speculative foreign investment. However, the extension of the Federal Ban until January 1, 2027, combined with the continued application of the NRST, is likely to produce unintended consequences in the near future.
Current market trends already show signs of a cooling housing market with declining prices and reduced sales activity across the country. In the context of pre-construction and condominium developments, Canada and more specifically Ontario, may be heading towards a period of oversupply. With a limited buyer pool due to these restrictions, there is growing concern that the market may experience stagnation in 2025 and 2026.
While the NRST and the Federal Ban aim to promote affordability, the probable consequence with the current market environment is an oversupply of available units with insufficient demand. To restore market balance, stimulate capital movement, and encourage renewed domestic and international investment, serious consideration should be given to soften and alleviate the current prohibition and high tax imposed to foreign investors. Such a step would help absorb the surplus condominium stock that Ontario will face in 2025 and 2026.
By Susana Mijares Pena
April 15, 2025
The Six Law Group