Welcome to British Columbia, where non-residents can (and frequently do) buy property and, unlike some countries, pay no extra taxes or fees because of non-residency. It’s one of the many factors that make BC an attractive place for overseas buyers to put their money into real estate – a phenomenon that is hitting the local headlines on a regular basis.
However, if you are one of those non-resident buyers or sellers, there are some important considerations to take into account – and it is not quite as simple as the headlines would have us believe.
Mortgages: Mortgage qualifications in Canada are different for non-resident buyers than for resident buyers. Non-residents should consult with a lender or mortgage broker to understand the qualifications. They will need to open a Canadian bank account and will need to do so in person with identification acceptable to the lender.
Documentation: Non-resident buyers do not need to be present in BC to execute closing documents. A number of lawyer and notary firms use technology to streamline the closing process for non-resident buyers. Documents can be forwarded electronically and executed in front of a lawyer or notary in most foreign jurisdictions. It is important to make arrangements for the transfer of monies well in advance of closing.
Taxation: Non-resident buyers should also consult with a Canadian tax professional to discuss tax treatment both during the period of property ownership and on disposition. A non-resident owner of rental property will be subject to a 25 per cent withholding of taxes on the gross rental income. Administrative rules require that the owner or agent remit these amounts to the Canada Revenue Agency. A non-resident owner may file a special form to have the withholding taxes reduced, which essentially treats the non-resident as a resident with respect to the rental income.
Clearance: When a non-resident sells property, they need to obtain a clearance certificate from Canada Revenue Agency. This is necessary to ensure that the non-resident pays any applicable tax arising from the sale of the property. When a non-resident sells property the purchasers must withhold a portion of the sale proceeds until a non-resident seller has provided a clearance certificate. The holdback is normally 25 per cent but could be higher depending on the use of the property.
A non-resident seller should retain the services of a tax professional to assist in obtaining a clearance certificate. This should be done as soon as possible as the process can take eight to 12 weeks. Under circumstances where the holdback would not leave sufficient funds to payout an existing mortgage at time of closing of the sale, a seller can claim hardship to expedite the issuance of a clearance certificate. A clearance certificate will only be issued once the tax is paid. Canada Revenue Agency will review the particular sale transaction to determine whether or not capital gains tax is payable but will also require payment of any other taxes outstanding or payable by the seller.
Claiming expenses: The seller can claim certain expenses in determining the adjusted cost base, including Property Transfer Tax, GST, legal fees on the original purchase and any capital improvements made, including strata assessments. The commission and tax and legal fees on the sale are not deductible for purposes of calculating tax owing at the time of the sale. The seller can claim these expenses by filing a Canadian tax return subsequent to the sale.