Non-Residents: Selling Property in Canada
DISCLAIMER: While the following information is deemed to be correct, rules and rates change frequently so Buyers and Sellers must consult a professional accountant and lawyer for up to date information and should not base their decisions on this material.
**Please click to view the Canada Revenue Agency's website regarding capital gains and tax liabilities
Non-Resident Capital Gains Tax
As a non-resident selling Canadian real estate, you will be required to remit capital gains tax. In general, this liability amounts to approximately 25% of your capital gain. Your gain is equal to the sale price minus your Adjusted Cost Base (ACB) -see below. Your lawyer is required to initially hold back 25% of the total sale proceeds while filing a Clearance Certificate (see below) on your behalf. Once the certificate is received, processed and approved, your lawyer will release the remainder of funds owing to you (the difference between 25% of the total sale proceeds and 25% of your capital gain). Your lawyer will coordinate with an accountant regarding this filing and the costs are typically around $1000 to $1500 plus disbursements plus GST (Goods and Sales Tax - 5%).
Adjusted Cost Base (ACB):
In calculating the capital gain on the sale of your property the Canada Revenue Agency (CRA) allows the following costs to be added to the purchase price to determine the adjusted cost base:
- The original purchase price
- Property Transfer Tax - (typically 1% of the first $200,000, 2% of the value up to $2MM, 3% of the value up to $3MM and 5% of the balance of value over $3MM). follow this link for details:
- Legal fees and disbursements on the original purchase price
- Cost of furnishings included in the sale (It is critical that you retain the receipts for all furnishings and that they be identified as having been acquired for the property, as well as any Customs documentation showing furnishings that were acquired in other jurisdictions which have been brought to the property.
- Strata Corporation (same as HOA in the USA) special assessments for capital improvements
- GST (Goods and Services Tax) - applicable on purchases of new construction
- A portion of the interest on the mortgage payments ( only if the seller has properly elected to have the interest capitalized on their tax return).
CRA does not allow any deductions from the selling price in determining your Capital Gain for Clearance Certificate purposes. Accordingly, expenses such as Realtor sales commissions and legal fees incurred on the sale are not included in the ACB calculation. By filing a Canadian tax return subsequent to the sale, the seller may claim these expenses and recover some of the tax paid to obtain the Clearance Certificate.
The Canadian tax return must be filed at the end of the tax year in which the sale completed. For individuals the return is due April 30 for the preceding tax year, for corporations it is due six months after the end of the year in which the sale completed, and for trusts it is due 90 days after the end of the trust’s tax year in which the sale completed. CRA then calculates the actual amount of tax resulting from the sale. If there is a difference between the calculated amount and the amount paid at the time the Clearance Certificate was issued, the difference is either paid by the seller or refunded by CRA. If the seller claims real estate commission and legal expenses on the sale, it is usually a refund.
All non-resident Sellers should contact their accountants or lawyers with respect to requesting a Clearance Certificate as soon as an accepted offer has been received with respect to the property. Should the completion (closing) date be prior to the issuance of the Clearance Certificate a hold back of between 25% and 50% of the sale price will be required by the Purchasers lawyer, until the Clearance Certificate is issued.
Shaun will coordinate this process on your behalf to ensure you receive your sale proceeds as soon as possible after your sale. Please contact us to discuss this important issue further.
It is a condition for a non-resident who is selling real estate in Canada to obtain a Clearance Certificate from the Canada Revenue Agency (CRA). Prior to the Canada Revenue Agency issuing a Clearance Certificate they will want to collect any tax payable with respect to your property purchase and sale. This will include any tax payable on the rental income from the property which has not already been remitted, as well as tax on the capital gain experienced on the property and if applicable, recapture of capital cost allowance.
Delays in obtaining Clearance Certificates are often lengthy (up to 8 weeks). A seller should contact their lawyer or accountant to request a Clearance Certificate as soon as an offer to purchase the property has been accepted. If a sale completes before the Clearance Certificate is issued, a percentage of the selling price ranging from 25% to 50% will have to be held back from the seller’s proceeds until a Clearance Certificate is issued.
If your property has been a rental, you are required to remit tax on the rental income. If you employ a professional rental manager, they should withhold 25% of your rental income for the purposes of remitting tax on your behalf and they'll submit an NR4 tax form. Fees for its preparation and filing vary and usually range from $300-$1000, depending on the nature of the transaction.