If you're a non-resident of Canada and planning to sell property in the country, there are important tax implications and requirements to be aware of. The Canada Revenue Agency (CRA) has specific rules governing property sales by non-residents, including potential tax holdbacks and the need for a Certificate of Compliance. This blog will guide you through the key points you should know before selling your home in Canada as a non-resident.
1. Understanding Non-Resident Status and Tax Obligations
A non-resident for Canadian tax purposes is someone who does not have significant residential ties to Canada and resides in another country. When a non-resident sells property in Canada, they must comply with Canadian tax laws, as the CRA imposes withholding taxes on such transactions.
2. What Holdbacks Can You Expect from the CRA?
When a non-resident sells Canadian property, the CRA requires the buyer to withhold a portion of the sale proceeds and remit it to the CRA as a form of tax security. This is done to ensure that the appropriate taxes are paid on any capital gains from the sale.
Standard Holdback Rate: The holdback is typically 25% of the gross sale price for most real estate transactions. If the property was used for rental income, the rate may be 50%.
Variation Based on Province: Some provinces, such as British Columbia and Ontario, may have additional taxes, including the Speculation and Vacancy Tax or the Non-Resident Speculation Tax (NRST), which could apply depending on the property’s location.
3. What Is a Certificate of Compliance?
A Certificate of Compliance (Form T2064 or T2068) is an official document issued by the CRA confirming that the seller has made arrangements to settle any taxes owing on the sale. Obtaining this certificate can reduce or eliminate the required holdback, ensuring that the funds are released to the seller more quickly.
How to Obtain a Certificate of Compliance:
Submit a Request to the CRA – You must complete and file Form T2062, “Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property.”
Payment of Taxes Owed – The CRA will calculate the expected capital gains tax and require payment or security before issuing the certificate.
Timeline for Filing – The request must be submitted within 10 days of the property’s sale closing date to avoid penalties.
Once the certificate is issued, the CRA will confirm the exact tax obligation, and any excess holdback can be refunded.
4. Capital Gains Tax Considerations
Non-residents must report the sale of Canadian property on their Canadian tax return for the year of the sale.
Capital Gains Calculation: The taxable capital gain is 50% of the net profit (sale price minus purchase price and selling costs).
Tax Rate: The tax rate varies depending on the amount of gain and the province where the property is located.
5. Additional Considerations for Non-Resident Sellers
Legal and Tax Assistance: Consulting a tax professional or real estate lawyer familiar with Canadian non-resident sales can help navigate the complex process and ensure compliance.
Timing of Funds Release: Since part of the sale proceeds is held back until the CRA processes the Certificate of Compliance, non-residents should plan accordingly to manage cash flow.
Currency Exchange Considerations: If you’re converting Canadian dollars into another currency, consider the impact of exchange rates and potential fees.
Conclusion
Selling a home in Canada as a non-resident involves additional steps and tax obligations compared to residents. Understanding CRA holdbacks, the Certificate of Compliance process, and capital gains tax implications can help ensure a smooth transaction. Consulting with professionals and planning ahead will make it easier to navigate these requirements and maximize your net proceeds from the sale.
If you are considering selling your Canadian property as a non-resident, ensure you seek professional advice to avoid unnecessary delays and tax penalties.