Perhaps due to the urgency with which the legislation was drafted and introduced, there are inconsistencies and ambiguities that need to be better understood in order to avoid potential pitfall (from the viewpoints of both the consumer and the real estate professional).

The policy makes it abundantly clear that a Canadian citizen, even if living abroad, is exempt from NRST. A verbal confirmation was even provided by a Ministry personnel while discussing an actual case. In the FAQ section, however, regarding cases of citizens residing outside of Canada for more than 183 days, it indicates they are “generally” exempt from NRST, implying that NRST may apply in some situations. When questioned, the Ministry would not clarify the inconsistency. Unless it’s an error, it is possible that the door is being left open to tax even citizens if their actions are sufficiently against the spirit of the legislation.

Also, let’s examine the case of joint purchase with a spouse who is a foreign national. The exemption automatically kicks in if the property is immediately occupied by the couple as a principal residence. If there is a lag, however, the Ministry requires occupancy within a reasonable period of time. Problem is that there cannot be a definition of reasonable period of time which applies to all situation. In such cases, it is strongly advised that an advance ruling be obtained from the Ministry before making the decision to purchase.

There are other ambiguities as well. What happens to an exempt refugee who must immediately dispose the property due to financial hardship? Also, although the criteria for rebates is clearly outlined, it is then qualified by a phrase “may be available”. For example, a foreign national who becomes a permanent resident within 4 years of the purchase is eligible for a rebate. But, what if it takes 4 years and a day?

It also remains to be seen how the compliance will be monitored and enforced since reporting and payment is completely voluntary. Reporting requirement for our income tax system is voluntary in nature. It is disappointing, however, that a special tax aimed at controlling the disruptive and speculative actions of foreign nationals is administered via voluntary disclosure only. Further revisions are likely to follow based on examples of actual circumvention and experienced cases of administrative inefficiencies.

Written by Sam Khang, CA, CPA

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