Non-Resident Tax on the Sale of a Property
When a non-resident decides to sell their property, it is important to consider the tax implications. This post provides an overview of the complex process, it is a simplified version. If you are selling your property, it is recommended you read the full version on the Non-Resident: Selling page. Note: this blog was written by a realtor, not a tax accountant. The purpose of this post is to give you a sense of what you will need to know when you decide to sell your property. It is always recommended to speak with your Canadian accountant.
Tax on the Disposition of Property
The Canada Revenue Agency (CRA) is concerned that the non-resident may sell their Whistler property, take the proceeds out of Canada, and never pay any tax due on the capital gain. It would be difficult for the CRA to collect tax from a non-resident who no longer has any assets in Canada.
Any gain on the disposition of property in Canada will be subject to tax in Canada. This tax is levied in 2 parts. However, there 3 significant stages to this whole process:
Stage 1: A Withholding Tax in the range of 25% to 50% of the gross proceeds of sale held by the Seller’s solicitor at the time of disposition of the property.
Stage 2: Within ten days of the date of sale, the Seller is required to file an application for a “Compliance Certificate”. This application includes a calculation of the capital gain on the sale proceeds. It can take over 2 months to obtain this Compliance Certificate and can take much longer in some cases. However, once the Compliance Certificate is provided by the CRA the Seller’s solicitor can pay a Withholding Tax to the CRA and release the remaining funds to the Seller.
Stage 3: There is a final calculation of the tax on capital gain and other taxable income as reported on the personal income tax return which is due after calendar year-end and should be filed by April 30th.
Note: If the non-resident Seller is buying another property in Canada, the CRA demands that you settle your tax situation on the property you are selling. Tax owing cannot be transferred over to the Whistler property you are about to purchase.
Step By Step
Part 1: Withholding Tax at the time of disposition
1. Prior to Completion Date: When the property is sold, tax may be due on the capital gain. At the time of completion, no one, including the CRA has determined exactly how much tax is owed. The Seller’s lawyer retains a hold-back of a minimum of 25% of the sale price, this can be as high as 50%. This is in anticipation of the CRA calculating and being paid the Withholding Tax long after the sale has been completed. The 25% to 50% hold-back is documented on the Statement of Adjustments.
2. On Completion Date: The Seller’s lawyer retains the hold-back of a minimum of 25% of the sale price and transfers the balance of the proceeds to the Seller’s bank account.
3. Ten Days After the Completion Date: Within 10 days of the completion of the sale, the Seller’s accountant files the T2062 “Request by a Non-resident of Canada for a Certificate of Compliance Related to the Disposition of Canadian Property”.
4. CRA Receives and Reviews the T2062: Upon receipt of the T2062 the CRA reviews, analyses, and possibly requests an audit.
5. CRA Determines the Withholding Tax: When the CRA is satisfied with the responses from the Seller regarding their review, the CRA determines what the Withholding Tax amount is on the sale proceeds.
5. Withhold Tax Paid: Seller’s lawyer pays the Withholding Tax amount determined by the CRA to the CRA.
6. Balance of Hold-Back Released to Seller: Once the Withholding Tax has been paid, the Seller’s lawyer releases the balance of the hold-back funds to the Seller.
7. UHT Status: The CRA is not required to issue a certificate of compliance to an applicant if they are not satisfied that the applicant is in compliance with any applicable obligations under the UHT. Read the page on Underused Housing Tax (UHT).
8. Compliance Certificate: Upon receipt of the required amount of the Withholding Tax, the CRA then releases a Compliance Certificate to the Seller and a copy to the Buyer.
Part 2: Personal Income Tax Return
The Seller files their annual Income Tax Return by April 30th.
9. CRA Refund: The CRA has received the “Withholding Tax”. Now, with the information on the Seller’s personal income tax return, the CRA calculates any personal tax owing and deducts from the Withholding Tax. Then the CRA may issue a refund of the balance to the Seller.
10. Tax Treaty: A non-resident would file their personal tax return with an accountant in their country of residence to report the capital gain on the sale of their property in Canada. If there is a Tax Treaty between Canada and the non-resident’s country it may result in a foreign tax credit being available to the non-resident. This tax credit may offset the tax on the capital gain in Canada in the non-resident’s own tax jurisdiction.
The Tax Treaty works both ways, for example, an Australian selling property in Canada, and a Canadian selling their property in Australia. Each seller must declare the capital gain, but will not want to pay tax on it in both countries. The principle is to avoid, at least to some extent, the possibility of double taxation.
Case closed!
If you think I would be a good fit to work with you and your family, and you are not already working with a Whistler realtor, please contact me. I look forward to hearing from you.
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Marion
Marion Anderson Personal Real Estate Corporation
marion@WhistlerSkiinSkiout.com (604) 938-3885