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Rules for Non-Resident Property Owners

Under Canada's Income Tax system, whether an individual is a Resident or non-resident plays a significant role in how much tax you pay. A resident must pay Canadian income tax on their worldwide income from all sources. A non resident must pay Canadianincome tax only on income from sources inside Canada RESIDNTS CRA defines a resident as someone who has lived in Canada for a minimm of 183 days within the past year.


Residents will not have to pay taxes owing on the sale of a property in Canada until they file their income tax return for the year in which they sold the property.


NON-RESIDENTS Defined as living in another country and are not considered a resident of Canada. Do not have significant residential ties including a home, spouse or common law partner or property in Canada, and *live outside Canada throughout the tax year or *stay in Canada for less tha 183 days of the tax year. Visit www.cra.gc.ca and in the search box enter IT221R3, Determination of an Individual's Residence Status.


NON-RESIDENTS AND PROPERTY OWNERSHIP A non-resident who buys property and does not rent it and does not earn income in Canada does not have to file an income tax return


NON-RESIDENTS AND RENTAL PROPERTY Non-resident property owner who rents their property is required to pay a 25% withholding tax on either gross or net rent and have it remitted monthly.

  1. Withholding tax on gross rent is required to have a Canadian agent remit the withholding tax to CRA within 15 days of each moth end together with a Form NR4.
  2. Withholding tax on net rent A non-resident property owner can apply to have the 25% withholding tax applied to net income instead of gross income, under Section 216 of the Income Tax Act. This will allow the owner to deduct expenses such as mortgage interest, property taxes and maintenance. If CRA approves withholding on the net rent, rather than gross rent, then non-resident property owners must file Form NR6.

When filing NR6, the owner/property manager must still report the gross amount of rental ncome for the entire year on Form NR4. Non-residents must also file a Section 216 income tax return for that year even if the property owner has no tax payable or no refund coming.


NON-RESIDENTS SELLING A PROPERTY You must notify CRA within 10 days of the date of the property sale to obtain a Certificate of Compliance and remit 25% of any capital gain (profit). The tax is 25% or more of the difference between the sale price and the cost of the property including improvements made during ownership.Ask an accountant if Canada has a tax treaty with your country and if you can get a tax credit in your country of residence.

If the Seller doesn't obtain a Certificate of Compliance, their NP/lawyer must withhold and remit 25% of the gross proceeds of the sale to CRA. Buyers also typically request a holdback of 25% or more of the purchase price until the Certificate of Compliance is delivered. This is to protect the buyer. If a seller were to disappear without paying the required taxes, the buyer would be liable for those taxes.


SELLING AT A LOSS If you sell your property at a loss, obtain a CC otherwise 25% of the sale price will be used as a holdback. NON-RENTAL OWNERS When a non resident owner sells a Canadian property tht has never been rented, they must complete a section 116 income tax return. REBGV August 2012 If you are uncertain of any of these rules, make sure you contact a professional tax advisor who is familiar with non-resident rules.


Contact an Accountant - Ralph Mueller, Nixon & Co 604-717-8122 or ralphm@telus.net.


As of SPRING 2010 the banks now require 35% for the first $400,000, 45% on the next $300,000 and 50% on the remainder, for non residents purchasing canadian real estate. However, some banks have more relaxed rules than others.

 

You are advised to consult an accountant or tax lawyer prior to listing your property, so that you understand what is involved and the costs to you.


the above information should not be relied upon without verificatiion

 

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