Selling Property in Canada - INTERNATIONAL SELLER
When a non-resident sells Canadian real estate, he/she is required to pay the appropriate amount of taxes on any capital gain. The normal Canadian tax rates will be applied to 50% of the gain. However, a non-resident is required to pay an estimate of the tax before the sale, an amount equal to 25% of the gain. This amount is to be retained by the seller's lawyer until such time as a clearance certificate is received from the Canada Revenue Agency (CRA) in connection with the sale of the property. Upon payment, the CRA will issue a clearance certificate to the seller, but not until there has been a contract of purchase and sale with all subjects (conditions) removed. The wait for the certificate is usually 6-8 weeks. If the certificate is not obtained, the purchaser is required to withhold from the sale proceeds, a percentage of the selling price (usually 25-50%).
On or before the closing date, the mortgage money is transferred to the seller's lawyer and then to the seller and the title is transferred to the buyer's name.
The non-resident seller should file a Canadian income tax return for the year in which the sale occurs and should expect to receive a refund of a portion of the taxes paid. The taxation of Canadian real estate depends on whether the use of the property is for a principal residence, an active business or as a rental property. If it is used as a rental property, a 25% non-resident tax must be paid on the gross rent a tenant pays. However, if you use a professional property manager, the manager will, by law, withhold 25% of the gross rental revenue at source to be remitted to the Canada Revenue Agency. Then on or before March 31 of the following year, the property manager issues an NR4 form and you then have the right to file a Canadian tax return. The tax return is due before June 30 and enables you to claim expenses against that income and potentially request a refund.
Many countries, such as the U.S., have tax treaties with Canada that prevent you from being taxed in both Canada and your home country. It is advisable to contact a tax accountant in your country for more information.
The following represents many of the additional costs and fees incorporated when buying property. As your realtor I will be able to let you know which are applicable to you.
Non-residents of Canada pay tax on income received from sources in Canada. The type of tax paid, and the requirement to file income tax returns, depends on the type of income received.
Canada has tax treaties with many countries, including the United States and the UK. A tax treaty is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries.
Property Transfer (or Purchase) Tax / Land Transfer Fees are calculated between 0.5-2% of the property's total value. They are generally 1% of the first $200,000 of the value and 2% of the remainder. You can find out the Land Transfer Tax using my calculator HERE.
Since the 2005 Provincial Budget, Property Transfer Tax (PTT) is now exempt for individuals buying their first home as long as they meet certain criteria, namely that they are a Canadian citizen or Permanent Resident and have never owned a home anywhere in the world; that they have lived in the province for at least one year prior to purchase; that they have filed two Canadian tax returns within the last six years; and that they must occupy the property as their principal residence for the first year of ownership. There are also proportional exemptions to PTT for first-time home buyers which vary by region based on the fair market value of the property.
As of December 2007, the Ontario Provincial Land Transfer Tax exemption for first time buyers (up to $2,000) now applies to resale as well as newly constructed homes. You can find out the Land Transfer Tax for first time buyers using my calculator HERE.
Similarly, from February 2008, Toronto (and this may spread to other provincial cities) has its own Land Transfer Tax which allows first time home buyers of both new and resale homes to qualify for a rebate. You can find out the Land Transfer Tax for Toronto properties using my calculator HERE.
If the property is vacant land, the house must be constructed within one year of closing and the buyer must live in the house for the balance of the year.
There are other criteria needed as well to qualify for the PTT exemption, so it is best to consult a lawyer or notary.
Clearance Certificate - The typical fees associated with preparing and filing a clearance certificate, paid by the seller, range from $300-$1000, depending on the complexity of the transaction.
Capital Gains Tax is not applicable on your principal residence.
Harmonized Sales Tax (HST) of 13% is a combination of GST and PST and is only payable on newly constructed homes and is often included in the quoted sales price. New home buyers of residences costing $350,000 or less can apply for a partial rebate that reduces the GST and the federal part of the HST paid from 5% to approximately 3.5% applicable on the purchase price as long as the home is going to be the purchaser's primary place of residence.
The rebate is gradually reduced for homes valued from $350,000 to the maximum value of $450,000. New homes priced $450,000 before GST/HST or higher do not receive a rebate. There is no GST/HST on resale housing unless the home has been substantially renovated, and then the tax is applied as if it were a new home.
HST is applicable on most goods, services and consumer products including new homes. Rebates are given for the construction or purchase of most newly constructed or substantially renovated houses used as a primary place of residence. HST is also applicable to any costs and fees associated with the property purchase including legal/notary fees, realtor commissions, strata fees, residential heating fuel, commercial rents, smoke detectors, fire extinguishers, repairs, cable TV, internet, electricity, gas, renovations, painting and other professional services.
GST/HST questions are best answered at source ie: the Revenue Canada website, or by an accountant who is familiar with real estate revenue taxation.
Property Tax is an annual fee levied within local communities, which means there are many different rates within each province. The difference between Property Tax and Property Transfer Tax is that PTT is a one-time provincial tax which comes into effect upon transfer of property and Property Tax is paid annually to the local taxation authorities. It is determined by applying the value of the property as assessed by the provincial assessment authority to the current tax rates as stated by the local tax authority. The amount can differ each year but generally Property Tax falls between 0.5-2.5% of the home's market value.
Realtor's Fees are paid by the vendor and are averaging around 5% of the home's market value. HST of 13% is also applied to the Realtor's commission and is payable by the vendor.
Appraisal Fee Your lender may require a property appraisal at your expense. The cost is between $150-$350.
Survey Fee Your lender will require an up-to-date survey. If the Seller does not have one, you will have to pay to have one done. This can be approximately $250-$500.
Lawyer's Fees Lawyers review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. The fee will be approximately $800-$1,200. This amount varies depending on the complexity of the sale and the type of property.
Home Inspection Fee is usually around $450. This is the equivalent of a survey in the UK and other countries and is carried out at the purchaser's request.
Property Insurance which covers the replacement value of the structure of your home and its contents.
Service Charges can be in the region of $35-$65 to hook up new services and utilities.
Condominium (Strata) Fees are charged monthly and cover building insurance and maintenance. The building’s property manager will provide you with the fee. For a newly built condo worth $250,000, expect to pay approximately $300 per month (this varies from building to building).
Should you have any other questions regarding the information on this page, please do not hesitate to Contact Me using the form below.