A Few Basics on Non-Resident Property Purchase [Feb 25, 2018]
Since the development of Kicking Horse Mountain Resort, we have experienced a high level of non-resident ownership, both at the ski hill and in the town. The following represents some of the main points that need to be considered for anyone involved in this type of transaction.
The Canadian Income Tax implications of a non-resident owning rental property requires that the owner withhold 25% of the gross rental income for each month, which must be remitted to Canada Revenue Agency (CRA) by the 15th of the following month. There is, however, a special election possible for the non-resident landlord which allows a reduction in that withholding tax. This election requires the owner to file a Canadian tax return and pay tax on the net income from the property (after expenses) rather than on gross rents. When this election is made, the non-resident must file an income tax return and report the rental income within 6 months after year end, using an NR6 form, which needs to be filed on or before January 1st of each year, or when the first rental payment is due. If this is completed, the Canadian agent need only withhold and remit 25% of the net rent for the month. Property purchase is subject to 5% Goods and Services Tax (GST) unless it is a used residential property. If it is a commercial property and you register for GST before closing the purchase, the GST on acquisition can be waived. If the property is commercial and you do not register before closing, or the vendor requires you pay GST, you can have it refunded.
GST on rent will be a consideration. The requirement to collect or not to collect will depend on the circumstances. For example, if you plan on renting your property for short-term stays, you will generally be considered a commercial operation and must charge GST on rental revenue. If you plan on using a property management company, the management company will handle the GST. The specifics of each situation will determine whether or not a GST liability results.
The BC Property Transfer Tax applies to the purchase of real property in BC. The tax is 1% on the first $200,000 and 2% on the balance of the purchase price, and must be paid at the time of registration, and is not refunded.
Selling Canadian real estate creates its own set of filing requirements for the non-resident. Any gain on the sale of rental or personal property in Canada will be subject to tax in Canada. When the property is sold, the purchaser’s lawyer will generally hold back 25% to 50% of the entire purchase price until he receives a Clearance Certificate from CRA. If the property has been rented, but withholding taxes have not been paid, CRA will require that all previous tax returns be filed before they will issue the certificate. After the end of the taxation year in which the property is sold, the non-resident may file a personal tax return to report the disposition of the property and calculate the final tax. This filing will generally result in less tax than originally withheld by the purchaser’s lawyer, and the difference will be refunded to you.
This is a pretty bare bones look at the tax issues of a real estate investment in Canada, and as with all tax planning issues, each particular situation is unique. This may give you enough information to begin proceedings, but the many variables involved make it important to obtain professional advice before completing any deal, to ensure that no problems come back on you later.
Kevin Cox, CPA CGA can be reached at kevincox [at] coxandcompany {dot} ca
Download as PDF