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Taxation on Sale of Real Estate by Non-Residents

Selling real estate in Canada as a non-resident can be a bit more complicated than selling property as a resident. Here’s what non-residents need to know about selling real estate in Canada.

Capital Gains Tax

Non-residents who sell Canadian real estate are generally subject to Canadian capital gains tax. The capital gains tax is calculated based on the difference between the sale price and the adjusted cost base of the property. The adjusted cost base is the original purchase price, plus any eligible expenses, such as legal fees and property taxes paid.

Non-residents are required to pay 25% of the capital gains tax they owe to the Canada Revenue Agency (CRA) within 30 days of the sale. If the non-resident fails to pay this amount, the CRA can hold the purchaser of the property liable for the payment.

It’s important to note that non-residents may be eligible for certain tax exemptions or credits, depending on their situation. For example, if the property was a principal residence, the non-resident may be eligible for a partial or full exemption from capital gains tax.

Withholding Tax

When a non-resident sells Canadian real estate, the purchaser is required to withhold and remit 25% of the gross sale price to the CRA. The withholding tax is intended to ensure that non-residents pay the capital gains tax they owe.

However, the withholding tax can be reduced significantly if the non-resident applies for a certificate of compliance from the CRA. A certificate of compliance will reduce the withholding tax from 25% of gross proceeds to 25% of Gain.  Let’s take an example of a property purchased for $600K sold at a price of $1M.  In absence of a compliance certificate, $250K will need to withheld at time of sale and remitted to CRA.  Obtaining a Compliance Certificate will reduce this amount to $100K.  If you are disposing real estate, you need to allow sufficient time to obtain the certificate of compliance as it would need to issued prior to closing date.

Professional Assistance

Given the complexity of the Canadian tax system, non-residents selling real estate in Canada are encouraged to seek professional assistance. A tax professional can help determine the non-resident’s tax obligations, assist with applying for a certificate of compliance, and ensure that the non-resident is in compliance with Canadian tax laws.

In conclusion, non-residents who sell real estate in Canada are subject to Canadian capital gains tax and withholding tax. They may be eligible for certain tax exemptions or credits, and can apply for a certificate of compliance to reduce the withholding tax. Seeking the assistance of a tax professional can help ensure that the process goes smoothly and that the non-resident complies with Canadian tax laws.

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