Tax Information for Foreign Sellers

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.

 

Background

I'm fortunate to work with a great number of 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 difficult 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 make every effort to simplify 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 that I have a qualified, professional, and experienced network of contacts to assist with your unique circumstances.

 

Did you know?

 

  • Non-residents are subject to Tax in Canada
  • 25% Tax or more will be withheld from the proceeds of sale
  • Non-Resident Sellers can apply for a Clearance Certificate to reduce withholding tax to 25% of the gain
  • Non-Resident Sellers must file a Canadian Tax Return to report the Disposition of property
  • Taxes Paid with a Clearance Certificate are applied to the Balance Owing on the Tax Return

 

 

Tax Liabilities and Reporting Requirements

 

TAX RULES for Non-Resident Property Owners

As a non-resident property owner there are important rules that you need to be aware of regarding your property.

 

Rental Property

NR6
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.


Disposition of Property

Clearance Certificate
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 procees 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 2008, the earliest that you can file a 2008 return is January 2009.

 

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.


For more detailed information please click on this link to download a .PDF copy for an explanation of the tax rules and allowable expenses provided by Gabrielle Loren, CGA at Loren and Company.

 

There's also some very helpful information available on the Canada Revenue Agency website.

 

Click here to visit CRA's web page "Selling or disposing of certain Canadian property"

 

Tom Davis | REALTOR®
Tom Davis Personal Real Estate Corporation
Sotheby's International Realty Canada
604 787 1456  

This communication is not intended to cause or induce breach of an existing agency agreement