Information for Non-Residents (Sellers and Buyers)
Clearance Certificate Information
If the owner is a Non Resident, a Clearance Certificate from Revenue Canada (New Name – CCRA – Canada Customs & Revenue Agency) has to be obtained. The process to get a Clearance Certificate can be outlined by your Lawyer or Notary Public. Depending on the circumstance, the normal fee that is charged to get this Clearance Certificate is approximately $500. It involves an accountant that the Lawyer or Notary selects to file an income tax return on behalf of the individual. The Clearance Certificate outlines to CCRA that there are no outstanding Tax issues with the property. This is especially important when there is a profit or Capitol Gain after the sale occurs. In the event the Clearance Certificate cannot be obtained by the closing date, the holdback by the Notary or Lawyer will be anywhere between 33% – 50% of the sale price. This holdback can cause a problem in the event there are not enough funds after paying off the mortgage. The normal time frame to process a Clearance Certificate is between 6-8 weeks.
There are no restrictions on non-residents purchasing property in British Columbia . There is no citizenship requirement to own land in B.C. There are restrictions on how much time may be spent in B.C. each year as a non-resident property owner. There are also income tax considerations to be aware of when a non-resident rents out a property or sells a property in British Columbia.
Immigration
Non-residents may move permanently to Canada and may operate a business after obtaining legal status by qualifying for immigration. New Canadian immigration rules have been in effect since June 2002. There are five main categories under which individuals may apply for permanent residence to Canada under a point system. For more information contact an Immigration office close to you.
Part Timers
Non-residents may stay in Canada for less than 180 consecutive or cumulative days in a calendar year. For this reason, many international buyers have bought second homes on the Island and have adopted a ‘6 month here and 6 month there’ lifestyle.
When the property is ready for occupancy in 2008 the new buyer (assignee) shall complete the sale with the Developer under the same terms and conditions per the original purchase and sale agreement. Please Note: In the event buyer two (assignee) does not complete the said transaction, the developer may go after buyer one (assignor). In this case buyer one should seek Legal Advice.
Tax Consequences
Non-residents who overstay in Canada can be deemed to be Canadian residents for Canadian income tax purposes and be taxed in Canada on their world income, even if they have paid taxes in another country.
Non-residents who rent out a property must, by law, remit 25% of their monthly revenue to Revenue Canada in anticipation of filing a Canadian Income Tax Return on their rental ‘business’ by the end of the next tax year. Timely filing of the required form confirming a net loss on the rental investment may preclude the requirement for the 25% remittance.
When a non-resident owner sells Canadian property, Canadian law requires a 25% holdback of the proceeds of the sale pending filing of a Canadian Income Tax return by the end of the next tax year calculating Canadian tax owed on any Capital Gain. Alternatively, the owner may obtain a ‘Clearance Certificate’ that may be applied for in advance of the sale. This Certificate may reduce the holdback to a percentage of the capital gain instead.
There is a tax treaty in effect between Canada and many countries, including the U.S., which allows a credit against the tax owed in Canada in the amount of what tax has been paid in the treaty country on any capital gain. Numerous countries have signed tax conventions with Canada . For details on how this may affect your status with regards to income taxation, please consult with your tax accountant.
A withholding tax is imposed on the GROSS selling price of a Canadian real estate property sold by a non-resident. Normally, the vendor applies for a clearance certificate (T2062) to reduce the non-resident withholding tax.
There may still be a big tax refund out there….
The non-resident vendor may potentially claim a tax refund by filing an income tax return to report the gain on the disposition. The refund is due to the following:
1. Selling costs (i.e. selling commission and other professional fees) are not deductible on the clearance certificate but are deductible on the tax return.
2. The full capital gain is subject to the 25% withholding tax on the clearance certificate whereas only 1/2 of the gain is included in the tax return.
3. The withholding tax is based on a flat rate whereas the tax returns are calculated using the personal progressive rates (for individual owners).
4. Special claims (i.e. principal residence or donation) may be available to the vendor.
*Caution: Regulations change and exchange rates fluctuate on a regular basis. This information is provided as a guideline only. For details on how any of this information may affect your taxation or legal status, please consult with your tax advisor or nearest immigration center.
Useful link:
http://www.cmhc-schl.gc.ca/en/co/buho/upload/TheNewcomersGuide_E.pdf