Canadians love real estate. Many Canadians invest in real estate, either as a property for themselves or to make money on the side. Non-residents can also buy real estate in Canada and sell it on the Canadian market with various tax implications for both parties involved. However, before you go any further, here are some things that you need to know about non-resident real estate transactions:
1. It is illegal for a non-resident of Canada to purchase land from another person who is not a resident of Canada;
2. The seller must withhold 15% GST (Goods and Services Tax);
3. There are no capital gains taxes or income taxes payable by the buyer under certain conditions
Withholding Taxes
If you are selling rental property, 25% of the sale price goes to the CRA. If you are selling residential property, then 50% goes to the CRA. The attorney handling the sale will remit this amount, but that is quite a chunk out of your price. The seller can file a Section 116 tax return by April 30 for a refund of the excess taxes based on the actual capital gain.
However, there is a way to minimize the withholding taxes. If you file a Section 116 Clearance Certificate before the sale closing date, or within 10 days of the completed sale, you can reduce the withholding from 25% of the selling price to 25% of the capital gain. The attorney holds the amount in trust until the CRA gives its approval. Then the lawyer releases the funds to the CRA and they, in turn, issue an official clearance certificate. Then the attorney will release the remaining funds to the seller.
This process can take between six and eight weeks. Then, as before, the seller must file a Section 116 income tax return to receive their refund if any. Therefore, buyers should factor in the wait when making decisions on purchasing decisions to avoid being frustrated by delays.
As a Purchaser
As you can tell, there is a lot of paperwork involved in buying a house. You need to hire an attorney and an accountant to help with the paperwork. The attorney will hold the funds while the accountant will file the Section 116 Clearance Certificate; receipt of the approvals; and final release. As the purchaser, your lawyer will take care of all of your side of the paperwork. It is just a good idea that you understand what is going on.
The Clearance Certificate will fully protect you as the purchaser from any CRA intervention to collect taxes.
Sometimes the real estate you are purchasing is tax-exempt. This is terrific, except be sure to get copies of all their supporting documentation to prove the tax-exempt status just in case there is some glitch.
The bottom line is that with careful planning the Canadian non-resident selling real estate can do so and still minimize the withholding taxes. Before you list the property for sale, make an appointment with an accountant to discuss your plans. He or she will ask a lot of questions to determine the best route. Together with the attorney involved in the sale, you can develop the best plan to get you the most out of the property sale.
Capex CPA has significant experience dealing with non-resident real estate sales. Make an appointment today to discuss your situation and to find the best route to the least amount of taxes. In fact, our staff is familiar with many of the issues surrounding a Canadian non-resident and we are happy to advise on any of those financial matters.
Contact your Accountants today click on this link —> https://capexcpa.com/contact