Non-Residents: Selling Property in Canada
**Please click to view the Canada Revenue Agency's website regarding capital gains and tax liabilities
Capital Gains Tax
As a non-resident selling Canadian real estate, you are required to pay capital gains tax. In general, this liability amounts to approximately 25% of your total gain. Your lawyer is required to initially hold back 25% of the total sale proceeds while filing a Clearance Certificate (see below) on your behalf. Once the certificate is received, processed and approved, your lawyer will release the remainder of funds owing to you (the difference between the 25% hold back and 25% of your gain). Your lawyer will coordinate with an accountant regarding this filing and the costs are typically around $1000 to $1500 plus HST (Harmonized Sales Tax - 12%) and dispersements.
It is a condition for a non-resident who is selling real estate in Canada to first obtain a Clearance Certificate from the Canada Revenue Agency (CRA). The normal wait for a Clearance Certificate is approximately six to eight weeks. Prior to the Canada Revenue Agency issuing a Clearance Certificate they will want to collect any tax payable with respect to your property purchase and sale. This will include any tax payable on the rental income from the property which has not already been remitted, as well as tax on the capital gain experienced on the property and if applicable, recapture of capital cost allowance.
In calculating the capital gain on the property the CRA allows the following to be added to the purchase price to determine the adjusted cost base:
- Property Transfer Tax - which was 1% on the first $200,000 and 2% on the balance of the purchase price.
- Legal fees and disbursements in conjunction with the purchase of furnishings and renovations included in the selling price. It is critical that you retain the receipts for all furnishings and that they be identified as having been acquired for the Whistler property, as well as any Customs documentation showing furnishings that were acquired in other jurisdictions which have been brought to the property.
- Goods and Services Tax (GST)
- A portion of the interest on the mortgage payments (only if the seller has properly elected to have the interest capitalized on their tax return).
CRA does not allow any deductions from the selling price in determining the gain. The amount required to be remitted on the gain is 25% of the gain. By filing a Canadian tax return subsequent to the sale you can claim expenses such as commission and legal fees and some of the tax may be recovered as well.
All non-resident Sellers should contact their accountants or lawyers with respect to requesting a Clearance Certificate as soon as an accepted offer has been received with respect to the property. Should the completion date be prior to the issuance of the Clearance Certificate a hold back of between 25% and 50% of the sale price will be required by the Purchasers lawyer, until the Clearance Certificate is issued.
RE/MAX Select Realty will coordinate this process on your behalf to ensure you receive your sale proceeds as soon as possible after your sale. Please contact me to discuss this important issue further.
If your property has been a rental, you are required to remit tax on the rental income. If you employ a professional rental manager, they should withhold 25% of your rental income for the purposes of remitting tax on your behalf and they'll submit an NR4 tax form. Fees for its preparation and filing vary and usually range from $300-$1000, depending on the nature of the transaction.
Commissions are paid by the seller. My commissions are typical of full-service agency commissions and are 7% on the first $100,000 of the sale price and 3% on the remainder. 12% HST (Harmonized Sales Tax) is applied to the commission. Commissions are paid via a debit on the seller's statement of adjustments at the time of completion.
Lawyer or notary fees will vary depending on the complexity of the transaction and are often $600-$1000. Your legal rep will review your contracts, search the title, draft mortgage documents and facilitate the closing.