Information is from notes taken at recent seminars given at the Real Estate Board of Greater Vancouver on Foreign Buyers - October 27th, 2005 and Non-Resident Tax Issues - March 3, 2006. The information provided is of a general nature and does not constitute tax or accounting advice. Furthermore, it is subject to change without notice. For tax or accounting advice you should always contact a professional tax accountant directly.
I am fortunate to work with many Non-Resident "Foreign Buyers" as part of my day to day real estate activities. My client base includes Buyers from across the United States, Europe, the Middle East and Asia. I understand how complex the concept of buying property in Canada can seem when you may be unfamiliar with the area, the laws, the immigration requirements, the tax implications, and more specifically the unique nature of the real estate transaction in British Columbia.
I take pride in simplifying the Real Estate buying process. I clearly explain each step of the transaction to my clients and, where necessary, refer them to qualified professionals to answer complex legal, immigration, and/or taxation questions.
Put my knowledge and experience to work for you. Rest assured I have a qualified, professional, and experienced network of contacts to assist with your unique circumstances.
The way in which you purchase Real Estate and the type of property you buy in Canada will have Tax Implications both in Canada and your country of residence.
- Considered a "Corporation" for Canadian Tax purposes
- Flow-through entity for US Tax puproses
Note: Owners can apply for a reduced withholding tax rate of 25% of Net rental income. In order to do this, owners must file Form NR6 and appoint a Canadian Agent. Forms must be filed annually before January 1st.
As a non-resident property owner there are important rules that you need to be aware of regarding your property.
If you purchase property that you rent out, you must file an NR6 form before the first month's rent is received. The NR6 form allows you to remit taxes on your net estimated rental income (i.e. after monthly expenses) vs. remitting 25% of your gross rental income.
This can significantly improve monthly cash flow!
Section 216 Return
This is a special rental income tax return that must be filed by June 30th of the year following a given rental year. The special return allows you to calculate taxes due on your rental profit net of allowable expenses. Note that if taxes are payable, the tax is due April 30th and interest accumulates on the amount due after this date.
An important point to remember:
You may own the property for several years and operate at a loss, (i.e. your expenses are greater than your rental income). However, if you show a profit in a given year, your losses from prior years do not offset them. There is no carry-forward option as each year's return is dealt with separately.
If you intend to sell your property, you should file for a Clearance Certificate the moment you have an "Accepted Offer" on the property. Otherwise, your lawyer/notary will be required to withold and remit 25% of your gross proceeds from the sale to the government.
The purpose of the Clearance Certificate is to ensure that the government receives tax on any profits you earned on the property. The tax is equal to 25% or more of the difference between the sale price and the cost of the property. Cost is calculated as the initial purchase cost plus legal fees and property transfer taxes plus any upgrades, additions or improvements that you made to the property during the time that you owned it.
Note that in order to get some or all of these witholding taxes back, you must file a non-resident tax return for the year of sale. If your sale occurs in 2010, the earliest that you can file a 2010 return is January 2011.
If you do not file for a Clearance Certificate, you may remit more tax to the government than required and once remitted, you will have to wait until the following tax year to file your claim for a refund of overpayment.
Non-Resident Tax Return
This is the return that you must file in the year subsequent to the sale of the property and is due April 30th.
This return allows you to claim back your legal fees and real estate commissions paid on the sale of your property and receive a refund of some of the taxes that you have paid relating to the Clearance Certificate.
There's also some very helpful information available on the Canada Revenue Agency website.
Tom Davis, REALTOR®
Personal Real Estate Corporation
Royal LePage Sussex
604 787 1456