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. Three significant initiatives currently in effect are Ontario’s Non-Resident Speculation Tax (NRST), the Federal Prohibition on the Purchase of Residential Property by Non-Canadians Act (the Federal Ban), and, at the municipal level, the City of Toronto’s Municipal Non-Resident Speculation Tax (MNSRT). The NRST, the Federal Ban, and the MNSRT are complementary but distinct legal tools aimed at curbing foreign demand in Canada’s housing market, each operating at different levels of government.
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 buyersgranted 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 paidthe 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.
Municipal Non-Resident Speculation Tax (MNSRT) – City of Toronto
In addition to the provincial NRST, certain municipalities have begun implementing their own measures targeting foreign ownership. Most notably, the City of Toronto has introduced the Municipal Non-Resident Speculation Tax (the “MNSRT”), which operates as a separate and additional tax on top of the provincial framework.
The MNSRT applies specifically to residential property purchases within the City of Toronto by non-resident individuals and entities. While the NRST is administered at the provincial level, the MNSRT is a municipal tax, reflecting a growing trend of local governments taking a more active role in addressing housing affordability within their jurisdictions.
Key considerations regarding the MNSRT include:
It is separate from and in addition to the NRST, meaning that non-resident purchasers in Toronto may be subject to both taxes concurrently, significantly increasing acquisition costs.
It applies to similar categories of residential property as the NRST, including single-family homes and condominium units.
The determination of whether a purchaser is a “non-resident” generally aligns with the principles used under provincial rules.
Unlike the NRST, which has a well-established framework of exemptions and post-closing rebates (such as upon obtaining permanent resident status), the MNSRT is more limited in scope, and buyers should not assume that provincial exemptions will automatically apply at the municipal level.
What Is The Practical Implication?
For purchasers acquiring property in Toronto, the analysis is no longer limited to federal and provincial compliance. A non-resident buyer must now navigate three layers of regulation:
Federal (Prohibition on Purchase)
Provincial (NRST – 25% tax and related rebates/exemptions)
Municipal (MNSRT – additional local tax)
This layered approach can materially impact the overall cost and feasibility of a transaction. For example, a foreign national who qualifies under a federal exemption and proceeds with a purchase in Toronto may still face the combined financial burden of both the NRST and the MNSRT.
Accordingly, careful pre-closing structuring and legal review are essential to determine tax exposure and assess whether any exemptions or rebates may be available at each level of government.
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, and particularly within the City of Toronto, a buyer must navigate federal, provincial, and in some cases municipal restrictions and taxes. 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. More recently, the introduction of municipal measures such as the City of Toronto’s Municipal Non-Resident Speculation Tax (MNSRT) has added another layer of cost and complexity, raising concerns that the cumulative effect of these policies may further discourage not only speculative activity but also legitimate investment.
Today, the Canadian real estate market is navigating a complex landscape shaped by domestic economic factors and international political developments; notably, persistent higher interest rates and global uncertainty. Said factors have resulted in recent data indicating a cooling in Canada's housing market.
As of early 2026, national home prices and sales activity have shown a decline, with reduced transaction volumes and increased inventory levels across major markets.
Indeed, in high-demand provinces like Ontario, home price forecasts for 2026 have been revised downward, reflecting muted demand and a market that currently favors buyers. This, combined with the Federal Ban, the continued application of the NRST, and the addition of municipal measures such as the MNSRT, suggests that the current restrictive framework may need to be revisited in order to maintain a balanced and sustainable real estate market in Ontario.
Conclusion
The regulatory measures introduced by the Federal, Provincial, and more recently Municipal 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 and the introduction of municipal measures such as the MNSRT, 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 more limited buyer pool due to these layered restrictions, there is growing concern that the market may experience stagnation in 2025 and 2026.
While the NRST, the Federal Ban, and the MNSRT aim to promote affordability, the probable consequence in 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 softening and recalibrating these measures. Such a step would help absorb the surplus condominium stock that Ontario will face in 2025 and 2026.
The Six Law Group
SMP/sam