Disposing Real Estate in Canada for Owners Who Are Non-Residents: What You Need to Know

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As should be expected, there are a handful of tax implications for those who wish to sell a property in Canada and who are not legal residents of the country. These properties can include residential homes, land and vacation properties. Should a non-resident decide to sell any such properties, he or she will be liable for paying taxes on any capital gains or income that have resulted from such a sale. So, let us have a quick look at some of the taxation variables that need to be considered.

Withholding Tax
Upon any property sale by a non-resident, the seller will be withhold a portion of the total amount. This amount will be given to the Canada Revenue Agency (CRA). As a general rule, this financial committal will be 25% of the total amount of the sale. In simpler terms, let us imagine that a non-resident sells a home for $100,000. He or she will be required to send $25,000 dollars to the CRA upon completion of the sale. However, properties that are considered to be “depreciable” (such as in apartments) may require the amount to be withheld to increase to 50%.

Still, it should be noted that the 25% withholding scheme cab be avoided if what is known as a “certificate of compliance” is approved through the CRA in no more than ten (10) days after the disposition (or even before the disposition takes place). These certificates may be able to limit or eliminate withholding taxes that would have otherwise had to be paid. After the certificate is filed, the tax (if any will be held) is calculated from the proceeds from the property sale.

The Purchaser’s Liability
Until the non-resident seller obtains the aforementioned certificate, the buyer will need to similarly remit 25% of the selling price to the CRA (on behalf of the seller) within thirty (30) days after the final day of the month that the buyer obtained the property (assuming that a certificate of compliance has not yet been received by the non-resident seller). It should be known that it can take between eight and twelve weeks for the CRA to approve the certificate, so it is rare that one will be issued before a specified closing date.

Normally, the lawyer of the purchaser will hold back 25% of the equivalent of what would be the total sale price of the property. This amount is held “in trust” on behalf of the Canada Revenue Agency and they will be notified as per a letter from the lawyer. This notification to the CRA will also state that the buyer can retain these funds beyond the final remittance date without being subject to penalties or interest.

Non-Resident Tax Returns Requirements
All non-residents are required to file a tax return by April 30th (after the year of deposition). It is important to note that while the 25% withholding tax has been provided, such a levy is not considered to represent an income tax payment. These taxes are established after the return has been filed and in many cases, this situation will result in a substantial refund. This is due to the fact that it is common for the amount of withholding tax already paid (25%) to be much higher than the actual liability on the property itself.

This article will be followed up by further guidelines for non-residents who are involved in the rental of a property and the requirements they are subject to.

If you or someone you know is engaged in the selling of taxable Canadian property, it is important to confer with a relevant accountant to make certain that all paperwork and compliance requirements are in order.

Eric La CaraEric La CaraManaging Partner and Tax Practice manager for Capital Tax in Vancouver and Tokyo. Eric is a U.S. and Japan Personal & Corporate tax specialist with more than 15 years of experience in the area of cross-border structuring and taxation. Eric is charged with developing Capital Tax overall operations and strategic direction using the business and technical skills he has acquired during his professional career in Asia.