Non-Residents Buying Canadian Real Estate There are no restrictions for non-residents purchasing real estate in Canada, though they may become subject to Canadian income tax laws, and will certainly encounter the following taxes on their transactions:
Property Transfer Tax (British Columbia) – The tax rate is one per cent on the first $200,000 of the property's fair market value and two per cent on the remaining fair market value. For more information, visit the Government of British Columbia’s Property Taxation Branch’s website at www.rev.gov.bc.ca/rpt.
Government Sales Tax (British Columbia) - On April 1, 2013, the Harmonized Sales Tax (HST) was replaced by the federal Goods and Services Tax (GST) and the BC Provincial Sales Tax (PST).
When does HST apply, and when does GST apply?
The 12% HST applies if the seller transfers either possession or ownership of a new home to the buyer before April 1, 2013.
The 5% GST applies if the seller transfers both possession and ownership of a new home to the buyer on, or after, April 1, 2013.
The PST and real estate commissions
The return to the PST will affect the taxes REALTORS® charge on their services.
If a commission or fee is payable before April 1, 2013, the 12% HST applies.
If a commission or fee is payable on or after April 1, 2013, then the 5% GST applies.
When does the commission become payable?
The standard Multiple Listing Contract provides that a commission is payable on the earlier of the following:
completion date under the Contract of Purchase and Sale, or
the actual date that the sale completes.
What about the 2% Transition Tax?
The 2% BC Transition Tax will apply to the sale of new residential homes if ownership and possession take place on or after April 1, 2013 and the construction or substantial renovation of the new home is 10% or more complete as of April 1, 2013.
The 2% tax ceseases to apply if ownership and possession are on or after April 1, 2015. The BC Government asserts the 2% reflects an embedded PST builders pay on materials (construction inputs). Under the HST, builders can write off that embedded 2%, but they cannot under the GST.
Property Tax (municipal)
If the seller has already paid the full year’s property taxes to the municipality, the buyer will have to reimburse them for the remainder of the year’s taxes.
Residence Status and Income Tax
If non-residents stay in Canada for more than 182 consecutive days, they may be considered Canadian residents for Canadian income tax purposes.
Non-residents of Canada pay tax on income received from sources in Canada. The type of tax paid, and the requirement to file income tax returns, depends on the type of income received.
Canada has tax treaties with many countries, including the United States. A tax treaty is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries.
Non-Residents, Canada Revenue Agency www.cra-arc.gc.ca/tax/nonresidents/individuals/nonres-e.html
Tax Treaties, Canada Revenue Agency www.cra-arc.gc.ca/tax/nonresidents/treaty-e.html
Cross Border Tax Issues: The Canadian Perspective, Reinhold G. Krahn. Vancouver: Lawson Lundell, December 2000 www.lawsonlundell.com/resources/CrossBorderTaxIssues.pdf
When selling or disposing of Canadian real estate, non-residents must notify the Canadian government within ten days of the completion of the transaction to obtain a certificate of compliance. A certificate of compliance will only be issued if the CRA has received either a prepayment on account of the taxes owing or appropriate security for the prepayment.
On January 1, 2004, the CRA will start charging a financial penalty to non-resident owners of taxable property in Canada who sell that property and do not, within ten days, provide notice of the sale to the CRA.
In other words, CRA is tightening its tax reporting condition for non-residents who own Canadian property and will charge them the greater of either $100 or $25 times the number of days beyond the ten that pass before the sales notice is filed with CRA. For example, if a non-resident sells taxable Canadian property and does not notify CRA until 21 days after the ten-day grace period, that individual will be charged a $525 penalty ($25 x 21 days).
There are exceptions to this new policy, though an accountant or lawyer is best suited to interpret their applicability in a given situation. An individual can also apply to waive or cancel the penalty through a government “fairness committee.”
Procedures Concerning the Disposition of Taxable Canadian Property by Non-Residents of Canada, Canada Revenue Agency www.cra-arc.gc.ca/E/pub/tp/ic72-17r5/README.html
“Tax Obligations Imposed on Non-Resident Vendors Disposing of Real Property in Canada.” Real Estate Update, Lawson Lundell, Fall 2001 www.lawsonlundell.com/resources/RealEstateUpdate.pdf
Note: The above is provided for informational purposes only and does not constitute professional advice. For more information, consult legal, financial and real estate professionals, as appropriate.
British Columbia Real Estate Association