Non-Residents of Canada are subject to yearly income taxes and other tax obligations when rental income is paid to Non-Residents.
When selling or disposing of Canadian real estate, Non-Residents must notify the Canadian government and the provincial government of Québec within ten (10) days of the completion of the transaction to obtain certificates. These certificates will only be issued if the Revenue Canada and Revenue Québec have received a prepayment on account of the taxes owing or appropriate security for the prepayment. Revenue Canada and Revenue Quebec started charging daily penalties times the number of days beyond the ten days that pass the sale date. There are maximum penalties. Please remember the Income Tax Act frequently changes; please do not rely on the above without talking to one of our Tax Advisors.
There are certain legal and accounting issues that arise when a Non-Resident of Canada acquires, rents or sells property in Canada. These issues are out below.
OBLIGATIONS OF THE BUYER’S NOTARY Until a Non-Resident vendor obtains a certificate of compliance, the Buyer’s Notary is obligated to hold back an amount equal to 37% (25% Federal + 12% Québec) of the purchase price, or risk becoming obligated to pay the taxes owing by the vendor as a result of the disposition. It is in the vendor’s best interest to apply for and obtain the certificates of compliance as early as possible, since the amount payable to obtain the certificates of compliance will likely be significantly less than what the purchaser is required to hold back. Failure by the vendor to obtain the clearance certificates, may expose the purchaser to a tax of 37% (25% Federal + 12% Québec) of the purchase price. The purchaser must remit this amount within thirty (30) days after the end of the month in which the property is acquired. In most circumstances, the proceeds from sale of the ”taxable canadian property” will be used to make the prepayment and thus obtain the certificates of compliance. It is common practice for the vendor’s Notary to arrange, through undertakings with the purchaser’s Notary, a hold back equal to 37% (25% Federal + 12% Québec) of the selling price of the property to be used toward making the payment to obtain the certificates of compliance.
To insure that a Non-Resident vendor pays Canadian and Québec tax owing on the gain resulting from the disposition of ”taxable Canadian property”, the Canadian and Quebec Income Tax Acts require a Non-Resident vendor to report the disposition and to make a prepayment on account the taxes payable equal to 37% (25% Federal + 12% Québec) on the gain of the disposition ”selling price minus the adjusted cost base” of the property. This percentage is increased to 50% if the property is “depreciable property’’.
Our team of experts will :
Gather all the data from Non-Resident and Notaries
Apply and obtain a Non-Resident Tax account no
Compute the Gain (Loss) on Disposition of property, and in the event that the property was the principal residence of the Non-Resident vendor for any of the years that he owned it, we will compute and deduct the applicable portion of the Gain (Loss) on disposition, thus reducing the income taxes payable
Compute the Recaptured depreciation of rental property
Complete, send and obtain Certificate of compliance (Federal & Québec) concerning Disposition of property
Complete, send and obtain Certificate of compliance (Federal & Québec) concerning Recaptured depreciation arising on disposition of rental property