Tax Considerations When Purchasing Canadian Real Estate

If you're purchasing Canadian real estate, it is essential to find out if the seller is "resident" of Canada or not. In the event that the buyer is non-resident of Canada and you are required to withhold from the the purchase cost to the seller and to pay the withheld amount in cash to Canada Revenue Agency ("CRA"). If you are required to withhold and you're responsible for pay the CRA to pay the tax even if you do not pay the withholding purchase price for the sale.

"Resident" means the seller is a resident of Canada to pay income tax. It is important not to confuse this with the status of the seller's immigration in Canada. "Resident" has a different meaning in the context of income tax in comparison to the immigration reasons.

Generally speaking, you will not be held accountable for withholding if , following a reasonable investigation, you do not have any reason to suspect that the seller is located in Canada.

The most common real estate contracts contain a clause where the seller is required to declare whether they are residents of Canada as well as a resident of Canada for tax purposes. While the declaration can be helpful however, it might not be sufficient to shield the seller from the risk of liability. Consider other elements that could cause you to doubt the validity that the document is true, including:

• The realtor or the seller is only able to be reached at odd times of the daytime. It could be that the seller is located in another time zone.
• The seller has a foreign postal address or phone number.
• The property is unoccupied.
• The property is vacant , and the seller provides the address of the property for their home address.

Additionally your liability could be reduced or completely eliminated when the seller receives an approval certificate by the CRA. If the price at which you sell the item does not exceed the amount that is stated in the certificate of clearance then you are not liable. any obligation. If the final sale price is greater than that stated in the certificate of clearance you must apply a withholding amount based on the price difference.

The amount you must withhold will depend on the usage of the property you are buying. For instance, if the owner uses the property as their home, then typically the amount of withholding required is 25 percent on the cost of purchasing (or 25 percent of the difference, when the seller is granted the clearance certificate). If, however, the seller intends to use the property to rent The required withholding is 25 percent of the price of purchase for the land, and 50 percent of the cost of purchasing the construction. It is therefore crucial to know how the seller will be using the property.

If you are unsure regarding the tax residence of the seller or the usage for the house, the best course of action is to withhold the appropriate amount from the amount to purchase. Then return the withholding amount into the CRA. The remittance should be received within 30 days after the expiration of the month that you purchased the property.