Tax Considerations When Purchasing Canadian Real Estate

If you're interested in buying Canadian real property, it is essential to find out if the seller is a Canadian citizen. Non-resident sellers may require you to withhold from the purchase price and to remit that amount to Canada Revenue Agency ("CRA") If you have to withhold from the payment, the CRA will hold you responsible.

"Resident" is the seller's status in Canada as a tax payer. This should not confuse with the seller’s immigration status in Canada. The meaning of "Resident", as used in income tax, is different than that for immigration purposes.

You will not be responsible for the withholding if you do not have reasonable grounds to believe the vendor is not Canadian.

The standard real estate contract will have a section that allows the seller to declare whether they are a resident or non-resident of Canada. This is for income tax purposes. While the declaration can be useful, it may not provide enough protection to avoid liability. Be aware of other factors that may cause you doubt the veracity or validity of the declaration.

• The seller/their realtor cannot be reached at odd hours of the day. The seller might be in a different time zone.
• The seller has a foreign postal address or telephone number.
• The property is now vacant.
• The property is currently vacant. The seller will give the property address to the buyer.

Your liability may also be reduced or eliminated if the seller receives a clearance certification from the CRA. Your liability should be limited to the amount shown on the clearance certificates. You are responsible for withholding any difference if the final sale price exceeds that shown on your clearance certificate.

The seller's use of your property will affect the amount that you have to withhold. For example, 25% of the purchase cost is required if the seller uses the property for their own residence. 25% is required if they obtain a clearance certificate. 25% is required if the buyer is renting the property. 25% is the amount due to the seller if they use the property for business purposes. The required withholding for a seller who uses the property as a rental property is 25% of its purchase price and 50% of its purchase price. You need to understand the purpose of the seller's use of the property.

If there are any questions about the seller's tax domicile or use of property, it is best to withhold the necessary amount from the purchase price. Then, remit the withholding to CRA. The payment must be received within 30 days after the month that you acquired the property.