Non-resident Buyer


Update April 25, 2017

The Ontario Government has implemented similar rules to that of Vancouver which will affect properties located within the Golden Horseshoe region (all the cities located on the shores of the east side of Lake Ontario). The rules still have to be voted on by council. Once approved the rules will be retro-active to April 21, 2017. An update will follow. For more information please connect with me.

Paul McDonald, Sales Representative

 

December 27, 2016

 

Real estate in Canada is now more of a commodity than ever, accounting for 12.5% of the gross domestic product. Foreign interest has become a common place and investors are buying land, buildings, houses and condominiums at unprecedented levels. Recently the Canadian Government has clamped down on foreign interest due to many Canadians concerns that they are being priced out of the market resulting in broad speculation over Vancouver’s heated housing stock. The result is numerous houses and commercial buildings sitting vacant as their values sky rocket with no need for a tenant to carry them as most houses are purchased in cash and treated like a stock rather than a house. With the average price appreciation of $10,000/month just one month would cover almost all the yearly expenses and the rest going into the pockets of rich investors.

In the summer of 2016 the Canadian Government implemented a 15% tax on all real estate purchased by non-residents of Canada in the Vancouver region (This tax only applies to the city of Vancouver). This has had a profound impact on the Vancouver market as the changes unfolded sales dropped as much as 26%, year over year; meanwhile sales here in Toronto are up 23.5% most likely as a result of these changes.

Since Canada is constantly growing and properties are incredibly affordable compared to other major cities in the world we have a lot of room to grow and the landscape reflects this great opportunity. If you’re looking for a place to call home or looking for investment opportunities please contact me.

 

Vancouver is the only city in Canada that is subject to the 15% tax for non-residents. Toronto has stated they are not looking to implement such tax at this current time frame.

 

Down payment for non-residents

  • A minimum down payment of 35% of the purchase price is required on all real estate that is being purchased by non-residents of the country (Subject to lender), some may ask as much as 50%.
  • The purchase must still meet lending requirements by lender if mortgage is required, i.e. verifiable income and credit worthiness
  • All other rules apply such as land transfer taxes (provincial and municipal) and potentially HST if the property has a commercial component.
  • Another thing to note, there are also tax implications selling a property, especially if you’re not living in it and never become a resident.
  • Depending on the country, it may be hard to bring your money to Canada, consult your local governing body to confirm their policy.

How can I purchase a property when I come to Canada?

Many people who buy real estate here often know someone already living here and they may have someone already in the real estate community, however sometimes this is not the case and there is a language barrier. Within RE/MAX Hallmark our parent company we have over 1,100 agents many of whom speak many different languages and come from countries all over the world so be rest assured you’ll be taken care of.

 

Do I need to have a Canadian bank account?

Yes, most lenders require a down payment/deposit to be in a Canadian financial institution for a minimum of 30 days.

 

There are 3 taxes that all property owners pay

  1. Land Transfer Tax
  2. Property Tax
  3. Income Tax (income producing properties are subject to income tax even for non-resident owners)

A non-resident of Canada is subject to Canadian income tax on certain types of income from Canadian sources, including

  • income/loss from employment in Canada,
  • income/loss from a business carried on in Canada, and
  • capital gains/losses from dispositions of taxable Canadian property.

A non-resident of Canada is required to file a special income tax return (Income Tax and Benefit Return for Non-Residents and Deemed Residents of Canada) to report the above sources of income. A non-resident who doesn’t have a social insurance number is required to obtain an individual tax number (ITN). The ITN can be obtained by completing Form T1261, “Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.” Although certain deductions and tax credits are allowed, there are some restrictions.

Non-residents of Canada are not required to file a Canadian tax return if their only income from Canada is from certain types of passive income, such as dividends, and pension income. In such cases, tax is withheld at source by the payer when the amount is paid to the non-resident. The general rate of withholding tax is 25%, but this may be reduced to a lower rate pursuant to the tax treaty that Canada has with the non-resident’s country. In the vast majority of cases, the non-resident may be able to claim a foreign tax credit in their country of residence for Canadian taxes paid. Rental income earned by a non-resident is also subject to the 25% withholding tax (on the gross rents received). However, in the case of real property rentals, there is the option for the non-resident to file a special return under Section 216 whereby tax is paid on the net income earned from the property. There are also additional procedures and filings that can be undertaken to reduce the amount of tax withheld to that based on estimated net income.

Non-residents are also generally exempt from filing Canadian income tax returns if the following criteria are satisfied:

  • No tax is payable by the non-resident for the current taxation year.
  • Each taxable Canadian property disposed of in the year is either exempt from Canadian tax due to a tax treaty or a property for which the CRA has issued a clearance certificate to the non-resident

 

If you have any questions drop us a line or better yet just give us a call we’d love to assist.

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