Implications of Selling Canadian Real Estate as a Non-Resident of Canada
Congratulations, you are looking to sell your Canadian property and hopefully will walk away with some fruitful gains. But apart from the excitement from the sale, it’s crucial to understand your tax obligations and potential planning opportunities to minimize taxes to Canada. Raymond James has a team of experienced tax consultants and accountants who can assist you with understanding the matters explained in this article and discuss the required tax filings.
Tax Residency
The following matters will apply to you if you are a non-resident of Canada for income tax purposes. Tax residency is not always a black or white matter, and individuals should always ensure they consult with a qualified cross-border tax professional as it relates to residency matters, especially when large transactions are involved. Missed or late tax filings could result in substantial penalties and interest, so it is always best to be prepared.
The CRA’s Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status is a comprehensive resource that discusses tax residency. While tax residency is not defined in the Income Tax Act, it has been tested by the courts and crucial factors include whether an individual has significant primary and secondary ties to Canada. Primary ties to Canada include a home available for their use in Canada, even if the individual still lives abroad. Therefore, if someone is living abroad and still has their home in Canada, they may still be considered a tax resident at the time of sale. Income tax treaties that Canada has with foreign countries may help address residency matters when an individual is considered a tax resident of two countries under each country’s domestic rules by providing tie-breaker rules.
Non-Resident Withholding
Under Canadian tax rules, Canada has the right to tax the sale of real property located in the country. To ensure the CRA has sufficient security to cover the tax liability, should a non-resident individual choose not to comply with their tax filings, they have a non-resident tax withholding process in place. However, the tax withholding is not the final tax liability, as will be explained further in this article. If an individual is factually a non-resident when disposing of Canadian real estate, there are specific rules in place that may come as a surprise to unsuspecting individuals. If someone has previously sold their home in Canada as a Canadian tax resident, the transaction may have been relatively straight forward, with sellers receiving their proceeds post-closing costs and mortgage balance, within a business day or two of closing. However, as a non-resident of Canada, sellers should anticipate additional administrative steps and delays with receiving their full proceeds.
