Foreign Buyers Purchasing Ontario Rental Property: NRST, Federal Ban, and Tax

Buying an Ontario income property as a foreign national or non-resident involves a layered tax and regulatory framework that does not apply to Canadian citizens and permanent residents who live in Canada. The Ontario Non-Resident Speculation Tax (NRST) applies on purchase. The federal foreign buyer ban may prohibit the purchase entirely, or restrict the type of property you can buy. The federal Underused Housing Tax (UHT) no longer applies: no tax is payable and no return is required for 2025 and later years. And when you eventually sell, non-resident withholding applies to the gross proceeds.

If you are considering buying Ontario real estate as an investment from abroad, this article maps out the full framework so you can make an informed decision — and identify the right advisors before you make an offer.

All rates, rules, and programs described here are as of writing and are subject to change. Verify current requirements with the Ontario Ministry of Finance, the Canada Revenue Agency, and the Government of Canada before proceeding.

Does the Federal Foreign Buyer Ban Apply to Rental Property?

This is the first question to answer. The federal Prohibition on the Purchase of Residential Property by Non-Canadians generally covers residential property — dwellings designed for one to several families. Larger multi-unit residential buildings and commercial real estate may fall outside the scope.

As of writing, the prohibition has focused on residential property under a specified unit count threshold. Pure commercial or industrial property is outside the ban. Verify the current scope of the prohibition with your lawyer before relying on this distinction — the regulations define "residential property" specifically and the threshold has been subject to discussion and potential revision.

NRST: No Rebate for Pure Investment Properties

The NRST applies to Ontario residential properties containing one to six single family residences purchased by foreign nationals. Unlike the NRST rebate for foreign nationals who become permanent residents, which requires principal residence occupancy, there is no rebate category for foreign nationals buying purely as landlords.

If you are buying a condo or house to rent out from day one, you will pay the NRST at closing and cannot recover it through any current rebate program. The NRST is a permanent cost of your acquisition in this scenario.

Plan your investment returns accordingly. Include the NRST in your cost basis for capital gain calculations — the province does not provide a tax credit for it, but it does increase what you paid for the property.

Land Transfer Tax: A Separate Cost

In addition to the NRST, all buyers (including foreign nationals) pay Ontario's provincial land transfer tax on all property purchases. Buyers of property in the City of Toronto also pay a municipal land transfer tax on top of the provincial amount. Neither of these is reducible for foreign buyers.

The combination of NRST + provincial LTT + Toronto LTT (if applicable) makes the acquisition cost of a Toronto income property significantly higher for foreign buyers than for Canadian residents.

The Federal Underused Housing Tax (UHT)

Foreign nationals who owned Canadian residential property were subject to the federal Underused Housing Tax, an annual tax on underused residential property, but no tax is payable for 2025 and later years. An income property that was rented at arm’s length for a sufficient portion of the year under a written lease could qualify for an exemption from the UHT. Even exempt owners had to file a UHT return for earlier years, but no return is required for 2025 and later years.

The penalty for failing to file a required UHT return for an earlier year is significant, even if no tax is owed. Many foreign owners of Ontario real estate have been surprised by this — they did not realize they had a Canadian filing obligation simply from owning the property.

If you buy Ontario real estate as a non-resident, engage a Canadian accountant who will handle your Canadian tax filings each year.

Non-Resident Rental Income Tax

While you own the property and receive rental income, you have an obligation to pay Canadian income tax on that income. Non-residents receiving Canadian rent must either:

• Pay a withholding tax on the gross rent (without deducting expenses), which your tenants' rent payments should properly have deducted; or
• Elect to file a Canadian non-resident income tax return and pay net tax on the rental profit after allowable deductions (expenses, mortgage interest, Capital Cost Allowance)

Most non-resident landlords find the net income filing more tax-efficient, but it requires an annual Canadian tax return and an election filed by a deadline. A Canadian accountant should handle this — it is not optional.

Selling the Property: Withholding and Clearance Certificates

When you eventually sell, the non-resident withholding rules apply. A percentage of the gross sale price will be withheld by the buyer's lawyer and remitted to CRA pending issuance of a clearance certificate. Because the withholding is on the gross price (not just the gain), and because rental properties may have depreciation recapture in addition to the capital gain, the tax exposure on a future sale can be significant.

Work through the projected sale tax scenario with a tax advisor before you buy — knowing the approximate after-tax return on a future disposition is essential to evaluating the investment.

Structure: Personal Name vs. Corporation

Some foreign investors ask whether buying through a Canadian corporation helps reduce the tax burden. A Canadian corporation owned by a non-resident is itself potentially a "foreign entity" for NRST purposes. The decision to buy personally vs. through a corporation involves trade-offs in liability, tax, and estate planning that require a thorough professional analysis — not a checklist.

Frequently asked questions