Selling a Property in Canada as a Non-Canadian Resident

Can non-Canadian residents participate in the Canadian real estate market? Sure, they can, but how does this work? We have put together a brief guide on selling a property in Canada as a non-Canadian resident.

Selling a Property in Canada as a Non-Canadian Resident Owner

A non-resident is allowed to buy and sell residential property in Canada.

Indeed, non-residents can enjoy many of the same facets of the Canadian real estate market as residents. They can obtain a mortgage loan from financial institutions as long as they fulfill the bank’s requirements and are approved for equity loans. Plus, for extra earned income on a property in Canada, non-resident property owners can also earn income on a property in Canada by renting it or using it as a rental property on Airbnb (or other similar short-term rental platforms).

At the same time, however, non-resident property owners should know beforehand that they must file taxes on any income they earn through their property. They are also required to pay annual property taxes like regular Canadian residents.

Suffice it to say while a non-Canadian resident owner can sell a property in Canada, certain measures must be taken before doing so. Let’s get acquainted with a few of these items.

First, when a non-resident owner sells a Canadian property, they must apply for a clearance certificate. This certificate can take approximately two to three weeks to clear after the date of closing. The property owner must submit the request for a clearance certificate within ten days of closing.

A non-resident owner is subject to a non-resident withholding tax of 25 per cent of the property’s gross sales price. For example, if a non-resident sells a property for $100,000 and the original cost of the property was $60,000, the withholding tax would be $25,000. This amount must be remitted to the Canada Revenue Agency (CRA). Of course, there is one exception to this rule: The withholding tax can be 50 per cent of the gross sales price if the property is depreciable.

A non-Canadian resident owner can request to have the non-resident tax withheld, but this will require filing the required forms with the Canada Revenue Agency (CRA). The property owner will also need a Certificate of Compliance.

If the non-resident owners are selling a property they have been renting out, they must file Section 216 returns to ensure they have reported their rental income and expenses and have paid their taxes. A clearance certificate by the CRA is only issued if all taxes have been paid.

If the non-Canadian resident chooses not to obtain a clearance certificate, they are still required to notify the CRA within ten days of the disposition of the property. If this is not done, the CRA can penalize the non-resident owner a penalty of $25 per day for each day the notification is delayed. This can lead to a minimum penalty of $100 and a maximum penalty of $2,500.

The owner must also file a Canadian tax return for the year of disposition. They can deduct the adjusted cost basis of the property as well as receive credit for any expenses incurred during the sale of the property.

The regulations by CRA are in place to ensure non-residents don’t simply take the money and run. They are required to pay their taxes on the sale of a property just like Canadian residents.

The process of selling a property for a non-resident owner can be complex. Several forms and documents must be submitted before a transaction can go through. Hence, seeking professional advice before selling is always a good idea. The CRA is very vigilant regarding property sales by non-residents because they want to ensure the deal is secure and the non-resident owner has fulfilled all their monetary and tax obligations. If the seller fails to meet the CRA’s requirements or if they have not paid their taxes or notified the CRA of the sale, they can be heavily penalized.

It is a misconception that the selling process differs for residents and non-residents. The process is the same – the only difference is that the non-Canadian resident may not be physically present in Canada. Even then, all financial and legal requirements must be fulfilled by the non-resident owner. Non-Canadian resident owners need to pay attention to filing deadlines. Missing these deadlines can result in unnecessary penalties and missed opportunities to minimize taxes for non-resident owners.

Is this a complicated process? Most definitely.

However, with the right tax advice, ample time for preparation, and timely submission of all documents and taxes, non-resident homeowners can successfully and efficiently sell property in Canada.