Despite being in the midst of the Covid-19 pandemic, many Canadian cities, like Ottawa, are experiencing a “seller’s market”. If you are a non-resident of Canada and looking to sell your Canadian property, know your tax implications first. Without it, you may risk incurring significant costs!
Non-residents are subject to Canadian tax in respect of capital gains from the disposition of real property situated in Canada. The Income Tax Act contains provisions designed to prevent non-residents from taking their money and skipping town by requiring the buyer to remit 25% of the selling price (of non-depreciable property) within 30 days after the end of the month from date of the close of the sale. If the property is depreciable property (e.g. a rental property), the withholding rate increases to 50%. Failure to do so may render penalties and interest on the buyer. So, if nothing else is done, the buyer will withhold and remit to CRA more tax than what you likely own and you can only get a refund when you file a tax return with CRA – a significant drain on your cashflow.
Luckily, the buyer can be absolved from remitting the tax as long as the non-resident vendor obtains a tax clearance certificate from the Canada Revenue Agency (“CRA”). To obtain the clearance certificate, the non-resident vendor gives “notice” to CRA by filing form T2062. Preferably, the form should be filed prior to the close of the sale, however, CRA will accept the notice if it is sent within 10 days after the close. In either case, the non-resident vendor must pay (or provide acceptable security) 25% (or 50% if depreciable property) of the net proceeds calculated as gross proceeds less the cost of the property (i.e. 25% of the estimated capital gain instead of 25% of the purchase price). Unfortunately, for the non-resident vendor, your filing requirements don’t stop there. You would also file a Canadian income tax return for the year of sale reporting the net gain, selling costs, and any payment you made in connection with the clearance certificate (which can be claimed as a credit against the final tax you owe). Generally, non-resident individuals will not be subject to additional taxes payable to a province, unless the property is located in Quebec. Similar to CRA, Revenu Quebec also has tax clearance procedures.
Given the complexities non-resident vendors face, it is beneficial to seek professional advice before selling. Here at Welch LLP, one of our tax specialists can help you avoid costly mistakes. Contact us now to learn more.
Tanya Bown, CPA, CA