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Non-Resident Ownership of Canadian Real Estate Ҭ

Non-Resident Ownership of Canadian Real Estate Ҭ

This article provides general information concerning the Canadian tax implications of individuals purchasing, renting and selling real estate in Canada.  For this purpose, readers are assumed to reside in a “non-treaty” country.  Canada has approximately 80 tax treaties with various countries around the world.

The following article provides general information concerning the Canadian tax implications of individuals purchasing, renting and selling real estate in Canada.  For this purpose, readers are assumed to reside in a “non-treaty” country.  Canada has approximately 80 tax treaties with various countries around the world, the terms of which may impact the comments herein.

Purchase

For Canadian income tax purposes, there are no implications at the time of purchase. The purchase establishes the “cost base” of the property, which will become relevant in the determination of future tax depreciation and any gain or loss when the property is sold. Deed transfer tax and/or other provincial or municipal levies may apply at the time of acquisition.  An acquisition of new construction/residential real estate is subject to HST/VAT is (currently 13%) while the sale of used residential real estate is HST/VAT exempt.

Rental 

Rental payments for property situated in Canada are subject to a 25% Canadian withholding tax. This withholding tax is based on gross rental payments. In the absence of an election to the contrary, this would be the only Canadian tax obligation with respect to the rental of a Canadian property. 

Alternatively, a non-resident may elect to file on the basis of net rental income.  For individuals, taxes on net income are based on a marginal taxation scale with rates starting at 22% and increasing to 43%, based on total Canadian net rental income during the year.  If a non-resident chooses to file in this manner, they may also apply to have the amount of tax withheld reduced from 25% to an amount approximating the anticipated tax liability for the year.  These elections and withholding tax reductions all require specific forms to be filed with the Canadian taxation authorities, which have specific filing deadlines. Late filing of returns or elections may result in penalties and/or interest. 

Disposition

At the time of sale, the lawyer who is facilitating the transaction should withhold 25% of the sale price for Canadian tax purposes.  A non-resident vendor (or their representative) must notify the Canadian taxation authorities of a disposition of Canadian property within 10 days of the disposition. As part of the notification process, the non-resident vendor must also disclose the net gain on the property (sale price less “cost base”).  The Canadian taxation authorities will calculate the Canadian taxes due on the disposition as 25% of the actual gain. The vendor will then receive authorization to release funds withheld in excess of this amount.   A vendor may apply for this release in advance of an actual closing or sale if they so choose. 

Patricia Parker
Oceanfront and 2nd Home Specialist
www.NovaScotiaTownandCountry.com

Please be advised that the comments contained herein are for general information purposes only and should not be interpreted as advice or an opinion.  Readers are cautioned that individual circumstances can substantially impact the tax implications of any transaction. Readers are advised to obtain independent tax advice before proceeding with a transaction.

©Patricia Parker