Non-Residents Property Owners
Are you buying real estate in Canada?
A non-resident purchasing real estate in Canada may become subject to Canadian income tax laws, such as:
- Property Transfer Tax (British Columbia) – One per cent on the first $200,000 of the property's fair market value and two per cent on the remaining fair market value.
- Goods and Services Tax (British Columbia) – Five percent applies to the purchase price of newly-constructed and substantially renovated homes.
- Property Tax (municipal)
- Income Tax – 182 Day Rule – A non-resident may be deemed a resident for Canadian income tax purposes if a non-resident resides in Canada for more than 182 consecutive days.
Are you renting real estate in Canada?
Non-residents of Canada pay tax on income received from sources in Canada and the type of tax paid and income tax return used depends on the type of income received. Avoiding double taxation for people who would otherwise pay tax on the same income in two countries is a major goal for non-residents; fortunately Canada has tax treaties with many countries that are designed to serve this goal.
Any person paying rent to a non-resident is required to withhold and remit to the Canada Revenue Agency (CRA) 25% of the gross rents paid (the 25% rate may be reduced with an undertaking to file a tax return). Most tenants are not aware of this obligation so most non-residents with rental property in Canada remit the 25% of their gross rental income to the CRA on their own account. The 25% withheld on the gross rental revenue and remitted to CRA is the final tax obligation. However, a section 216 tax return can be filed to pay tax on the net rental income of the rental property. Depending on the marginal tax rates that apply, a significant portion of the taxes withheld may be refunded. If a section 216 return is not filed within two years (or six months in some cases), then the 25% withholding tax is the final payment of tax in Canada.
Are you selling real estate in Canada?
A non-resident selling Canadian real estate will experience a long and complex process to complete a sale and to avoid significant penalties.
A non-resident owner of taxable property in Canada who sells that property and does not provide proper and timely notice (within ten days) of the sale to the Canada Revenue Agency (CRA) will be charged a financial penalty. Avoiding a financial penalty requires a certificate of compliance (issued by CRA) after the CRA has received either a prepayment on account of the taxes owing or appropriate security for the prepayment.
Additionally, without a certificate of compliance, the purchaser is required to withhold and remit to CRA 25% (or 50% in some cases) of the sale price. Applying for and obtaining a certificate of compliance in advance of the closing date, the CRA will request a withholding tax payment of 25% of the capital gain (before closing expenses) instead of the 25% of the sales price. By filing a Canadian personal income tax return reporting the net capital gain, less closing expenses, you will be entitled to a significant refund of the amount of taxes withheld by the CRA. The process is designed to protect the integrity of the Canadian tax system and provided non-residents an incentive to complying with the system.