A non-resident may buy and sell property in Canada. A non-resident may even earn income on a property in Canada, either by turning it into a rental property or by turning it into a short-term rental like an Airbnb.
That said, owning, maintaining, renting, and selling property across national lines can get complicated. Here’s what you need to know about buying and selling property as a non-resident in Canada.
What do non-residents need to know about buying property in Canada?
You’ll have to pay the provincial land transfer tax and those amounts can vary wildly from province to province. In Alberta they aren’t particularly punitive, but there are some provinces where they can be up to 5% of the purchase price of the property.
These monies are paid at closing and cannot be rolled into the mortgage. In addition, you won’t be able to take advantage of rebate programs or other programs meant to help Canadian citizens cover the costs of home ownership.
If it is a brand new home you’ll also have to pay the Goods and Services Tax (GST) at closing.
Once you purchase property be sure to track any renovation costs. These expenditures can help you lower your tax liability later.
What do non-residents need to know about selling property in Canada?
The buyer will be withholding some of the funds. If it’s a rental property they’ll be withholding 50% of the funds, if not it will be 25%. This money is generally kept in an escrow account where it will be safe, or it will be held in trust by your own real estate attorney.
They are doing this because the Canadian Revenue Service (CRA) wants assurances that a non-resident won’t just “take the money and run.” That is, they want to be sure that you’re going to pay your taxes on the sale like any Canadian resident would.
Note this is a withholding. This isn’t the total amount of tax you pay. The Canadian government is not taking 50% of your sale amount. That would be punitive and would surely discourage non-resident investors.
Instead, you are required to file a Certificate of Compliance due 10 days after the date of the sale. Failing to file this also means accruing penalties: $25 a day to a maximum of $2,500. Once you file the CRA requests a security deposit on your taxes. Once you pay that, the CRA issues a Certificate of Compliance. The buyer can then release the amounts withheld.
At the end of the year you then file your tax return. Because you have already paid a deposit you will most likely get a refund and will get most of your money back. The actual tax liability is usually significantly lower than the deposit you paid. If the rental property lost money then you will get a larger income. Like any Canadian tax payer, you may deduct operating expenses and capital expenses such as furniture and equipment in the property. You may also often deduct property taxes, mortgage interest, and home equity loan interest on investment properties, but tax law varies from year to year. It’s important to consult with an accountant before selling any property, as well as a real estate attorney.
If you do not file your tax return the government gets to keep your entire deposit. You won’t be considered to owe any taxes which means you won’t have trouble with additional purchases and sales in Canada, but you lose a lot of money.
Obviously this can cause some cash flow issues. Sellers are advised to plan for them.
What do non-residents need to know about maintaining a rental property in Canada?
Plan to pay annual property taxes just like a resident does. This will be taxes paid on the assessed property value of the home.
In addition, you are required to withhold 25% of your rental income and pay it to the CRA throughout the year. You will generally receive a refund on any overpaid tax liability once you file your tax return with the CRA. Filing an NR6 form lets you withhold 25% of the net instead of 25% of the gross, which means 25% after all your expenses are accounted for.
Often, it’s wise to hire a local Canadian property management firm to take care of this for you. They open the withholding account for you, they withhold the taxes, they deal with the property, they send you the check on what you’ve actually made. This also means you don’t have to travel to Canada every time you need to replace a tenant, or every time there’s a maintenance issue, and it means you won’t have to attempt to do either while sitting in another country: a boon in the era of Covid-19. Property tax companies will even file the taxes with the government for you.
For a breakdown of how all the numbers might work, see this post from a Canadian CPA.
If you’ve owned a rental property in Canada for years and have not been complying with the tax requirements, either out of ignorance or for other reasons, you should file Section 216 elective tax returns under the CRA’s 216 late-filing policy. Otherwise you might have to pay all of that back taxes when you sell the property.
Can non-residents get a mortgage loan in Canada?
Yes. Canadian banks offer mortgages and home equity loan to non-residents. Each bank will have its own individual requirements.
How long can non-residents stay in Canada?
You can usually stay for up to 6 months. Owning a property in Canada does not extend the amount of time you are allowed to stay in the country without a visa of some kind. If you wish to stay longer than 6 months we urge you to contact an immigration lawyer so you can explore your visa options.
Can a non-resident open a bank account in Canada?
Yes, but you will need to go to your chosen financial institution in person, and you will need to provide the necessary identity documents, which will vary by bank.
American citizens might also open a bank account in America with a bank that exists in both country. International multi-currency accounts are also an option for those who are investing in Canadian real estate.
Does a non-resident who owns property in Canada have to file a Canadian tax return?
Yes. You have to file for the capital gains and if you have a rental property you have to file and pay taxes on your rental income. If you’ve only recently bought a property in Canada then you’ll need to request an Individual Tax Number (ITN) from the CRA.
If you are a resident of the United States you will also have to report the income to the IRS. You will not necessarily have to pay twice: paying the tax in Canada means you’re able to claim it as a foreign tax credit. This reduces your tax liability and thus reduces your total taxes owed. It is meant for investment income, not for earned income.
Do non-residents pay capital gains tax on property sold in Canada?
Yes, though the withholding you pay on the sale will often cover the costs, and you’ll often receive a refund (see above).
Get Help from a Canadian Real Estate Attorney
Investing in real estate is complicated no matter where you’re doing it. Make sure you have a qualified Canadian real estate attorney on your side. Call (780) 488-4152 to set an appointment with a local attorney who can guide you through these and other issues which might impact you as a non-resident property owner.