Non-Resident Selling Real Estate in Canada

Non-Resident Selling Real Estate in Canada

 In Non-Residents, Real Estate

The tax reporting process for a non-resident selling real estate in Canada can be long and complex.  In this blog, I will explain the general process for non-residents sellers and why it is important to obtain professional guidance.

This will be a 3-part blog series on buying, renting and selling real estate in Canada.  If you are non-resident who currently owns real estate or are looking to invest in Canada, make sure to stay tuned!

Tax Process for a Non-Resident Selling Real Estate in Canada

  • As a non-resident, you are subject to 25% (or 50% in some cases) withholding tax imposed on the gross proceeds from the sale of real estate in Canada. This is typically held in trust by your closing lawyer.
  • An application for a Certificate of Compliance must be sent to the CRA within 10 days of the sale. This certificate allows you to pay withholding tax based on your capital gain instead of the gross proceeds.  You may also be eligible for certain tax exemptions to reduce your liability further.
  • Once the certificate is approved, your lawyer will pay the withholding taxes requested by CRA and release the difference in funds to you.
  • You must file an income tax return to report the sale of real estate. Usually, this tax return will result in a refund where the actual tax liability is less than the tax withheld.

Example

Anne is a non-resident and sold her condo located in Toronto for $600,000.  The property was originally purchased 8 years ago for $250,000.

  • Anne’s lawyer withholds 25% of the gross sales price (i.e. $150,000).
  • Anne’s accountant applies for a Certificate of Compliance. CRA approves and allows Anne to pay withholding tax based her capital gain.  This is calculated to be $87,500 (i.e. 25% x $350,000).
  • Her lawyer remits $87,500 to CRA and releases the difference of $62,500 (i.e. $150,000 minus $87,500) to Anne.
  • Anne’s accountant files an income tax return and calculates her actual tax liability to be $70,000. Anne receives a tax refund of $17,500 (i.e. $87,500 minus $70,000).

By completing the appropriate tax filings, Anne has successfully reduced the withholding taxes paid on the sale from $150,000 to $70,000!

Tips and Traps

  • Hire a Professional  – Without proper guidance, non-residents may find themselves paying excessive taxes.  An experienced accountant can guide you through the process and minimize your tax liability.
  • File on Time – This process is not only administratively complex but also time sensitive.  A late application for a Certificate of Compliance may be subject to penalties of up to $2,500 plus interest.
  • Do not Wait Until the Last Minute – An application for a Certificate of Compliance is due within 10 days of the sale.  However, in my experience, CRA will take weeks or even months to process the forms.  File the forms as soon as possible to avoid a delay in the release of funds.
  • Failure to Report Rental Income – When an investment property is sold, CRA will verify fulfillment of past tax obligations before issuing a Certificate of Compliance.  Many non-resident landlords are surprised that they may have tax obligations when they earn rental income.  If you are in this situation, you should contact an experienced tax accountant.  To learn about your tax obligations as a non-resident landlord, make sure you read our new blog here.


The content of this blog is intended to provide a general guide to the subject matter. Professional advice should be sought about your specific circumstances.

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