Selling as a Non-Resident
This selling as a non-resident page offers you an overview of what to expect, and the timeframe involved in selling your Whistler property.
When you are buying your Whistler property which is generating income it is essential to retain a BC or preferably a Whistler accountant to work with you. A Whistler accountant is familiar with the zoning in Whistler and can respond without research. When you come to sell, everything should be in order and the process will be as smooth as it can possibly be. If you are dependent on a rental management company and they have been handling the GST and withholding tax, you should be in good shape to consider selling.
Always alert your accountant when you are thinking of selling. Your accountant should be called well in advance of calling your realtor. Your accountant can start the process of compiling the documentation to be presented to the Canada Revenue Agency. You want to do all the accounting before you list your property, otherwise, it can be stressful.
This page has taken considerable research to provide you with an overview that anyone can understand. In order to achieve that, the information from the Government of Canada site was selected and posted below in bold type. The author, Marion Anderson has filled in the steps of the process in regular font. This page is not a substitute for an accountant or lawyer, but it will give you a good overview so that you understand that selling as a non-resident means that there is a tax process that will take time it takes. Spoiler alert: On the completion date you will not receive all the money from the sale.
Buying. Owning. Selling.
If you are a non-resident Buyer, do yourself a favor and read the following pages. It helps to stay informed.
- Buying Process
- Non-resident: Buying
- Non-resident: Finance and Funds
- Non-resident: Owning
- Non-resident: Selling
Table of contents
- Selling as a Non-Resident
- Buying. Owning. Selling.
- Tax on the Disposition of Property
- Tax Disposition Part 1
- Tax Disposition Part 2
- Best Time to Sell
- Purchaser’s Liability
- A Non-Resident can be a Canadian Citizen
- Income Tax Act
- Next Steps
Yes. Any gain on the disposition of property in Canada will be subject to tax in Canada. This tax is levied in 2 parts: 1) withholding tax and 2) personal income tax.
Yes. Whether there was rental income generated from the property or not, you will need an accountant.
Yes. Being considered a non-resident of Canada is based on your permanent country of residence. However, this should be explored with your Canadian accountant.
Yes. It depends on market conditions and the complexity of acquiring the Compliance Certificate. You want the sale to complete by October giving the CRA 3 months to issue the Compliance Certificate before December 31st. Ask your 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. 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. By having two parts it gives the CRA the opportunity to hold on to a sizeable portion of your funds until they are satisfied with your tax situation.
Part 1: there is a Withholding Tax at the time of disposition.
Part 2: then a final calculation of the tax as reported in the T1 personal income tax return which is due after calendar year-end.
Tax Disposition Part 1
Part 1 was compiled from the Government of Canada Non-resident Disposition of Property site.
GOC General Information
Point 1. Under section 116, non‑resident vendors (from now on referred to as Sellers) who dispose of certain taxable Canadian property (see paragraph 2 below) have to notify the Canada Revenue Agency (CRA) about the disposition either before they dispose of the property or within ten days after the disposition. When the CRA has received either an amount to cover the tax on any gain the Seller may realize upon the disposition of property or appropriate security for the tax, the CRA will issue a certificate of compliance to the Seller. A copy of the certificate is also sent to the Buyer. If the Buyer does not receive such a certificate, the Buyer is required to remit a specified amount to the Receiver General for Canada and is entitled to deduct the amount from the purchase price. Any payments or security provided by the Seller and/or Buyer will be credited to the Seller’s account. A final settlement of tax will be made when the Seller’s income tax return for the year is assessed.
1. For example, the sale of a non-resident’s $1,000,000 CAD property was completed on May 1st. The Buyer’s lawyer has transferred the $1,000,000 CAD minus the Statement of Adjustments expenses to the Seller’s lawyer for distribution. The Seller’s lawyer has received the funds.
Managing the Holdback
2. It is important to note that the Income Tax Act states that it is the Buyer’s lawyer who holds back the funds in anticipation of the CRA calculating the Withholding Tax. However, typically, the Buyer’s lawyer and Seller’s lawyer agree that the Seller’s lawyer will retain and distribute the holdback funds. Should a Buyer’s lawyer decide that they want to handle the holdback funds then there is no argument against that. For ease of understanding this already tricky topic, in this example, the Seller’s lawyer is retaining and distributing the holdback funds.
3. The holdback amount depends on various factors, that are too complex for this page. The Buyer’s lawyer will have an influence on the holdback amount, which will be stated on the Statement of Adjustments prepared by the Buyer’s lawyer. The holdback is a minimum of 25% and can be much more. It is important that before listing your property for sale, you present your accountant with all the documentation required for the accountant to determine the valid holdback amount. For ease of understanding, this example is based on a 25% holdback.
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 owning cannot be transferred over to the Whistler property you are about to purchase. So, please continue reading.
Paying out the Mortgage
4. The Seller’s lawyer now holds back at least 25% of the $1,000,000 CAD which is $250,000 CAD. The mortgage charges and the Statement of Adjustments costs are now deducted from the $750,000. This leaves the sale proceeds. The Seller’s lawyer transfers the sale proceeds into the Seller’s bank account. It is essential for the Seller to ensure that there are funds to pay out the mortgage from the proceeds.
Note: at this stage, the Seller’s lawyer will determine whether to invest the holdback in a 3-month term GIC to earn interest on money. The downside of that is the Seller will have to file an income tax return on April 30th reporting the income earned in the previous year…some Sellers opt out of this for that reason as it extends the process another year.
Calculation of Taxable Gain
5. The Seller’s accountant calculates the taxable gain on the sale of the property. The documents required for this calculation include but are not limited to:
- Contract of Purchase and Sale documents
- Statement of Adjustments
- Invoices for renovations or repairs and maintenance
- Canada Customs documentation for any goods imported into Canada.
10 Days After the Sale
6. Within 10 days of the completion of the sale (deadline of May 10th for this example), 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. If the Seller has indeed contacted their accountant when they were thinking of selling, the Seller’s accountant will have received and compiled all the documentation and will be able to send off the T2062 immediately after the sale.
CRA Receives and Reviews the T2062
7. Upon receipt of the T2062(A)The CRA reviews, analyses, and possibly request an audit. It is not as simple as the CRA receiving the T2062 and approving it, expect delays. This can take at least 2-3 months and longer in certain circumstances.
However, if the seller owns a revenue property and the GST has been submitted monthly and a personal income tax form submitted annually, the CRA will have a history of the seller. This speeds up the turnaround at the CRA.
CRA Determines the Withholding Tax
8. 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. Meaning, how much money is the CRA going to ask for, and hold in order for you to receive the Certificate of Compliance?
GOC Point 41. For a certificate of compliance to be issued under subsection 116(2) or 116(4), the required payment on account of tax or security acceptable to the Minister on the disposition or proposed disposition of property is a flat rate of 25% of the excess of the proceeds of disposition over the adjusted cost base of the property. Outlays and expenses incurred for the purpose of making the disposition are not taken into account in this calculation. These amounts are deductible in calculating the gain on the disposition, which should be reported on the income tax return for the year in which the disposition occurred.
GOC Point 45. The CRA will issue the certificate of compliance at the earliest possible date once the necessary information and supporting documentation have been received and validated, and acceptable payment or security has been received.
Withholding Tax Paid
9. The Seller’s Lawyer receives the Withholding Tax amount determined by the CRA that is owed on the sale. The Seller’s lawyer submits that amount to the CRA from the minimum 25% of funds that have been held back. If you are confused, re-read point 3. Please note, this is not the final tax calculation on the sale. There should be a rebate due to you after you file your personal income tax. However, it does mean that the CRA is holding a lot of your money. Read on to Tax Disposition Part 2.
Balance of Holdback Released
10. With the Withholding Tax paid to the CRA, the Seller’s lawyer releases the balance of the 25% holdback to the Seller.
11. 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. The goal is to have this document released by the CRA before December 31st.
Point 46. A copy of the certificate of compliance will be issued to both the Seller and the Buyer. The certificate protects the purchaser from any further tax liability in respect of the particular notice filed for that particular disposition. The Seller’s final tax liability in respect of the particular notice will be determined when the Seller files a tax return, as is required under the Act, for the year the disposition took place.
Tax Disposition Part 2
Part 2 was compiled from the Government of Canada Non-residents disposing of certain Canadian properties.
Timing on Filing Personal Income Tax
12. If the Certificate of Compliance has been issued by the CRA before December 31st, then the Seller can file their Canadian income tax return within 4 months, that is, before April 30th.
If the Certificate of Compliance is not issued by December 31st and is, for example, issued by January 5th, then the seller has to wait basically 12 months to file their Canadian income tax return and receive their refund.
Generally, if you have disposed of a taxable Canadian property (TCP), you are required to file a tax return. Non-resident individuals must file their Canadian income tax return by April 30 of the year following the year in which the disposition took place. A copy of the Certificate of Compliance must be attached to the return.
13. The CRA is holding a lot of the Seller’s money (see point 9). Now, with the information on the Seller’s personal income tax return, the CRA will most likely issue a refund to the Seller. The final amount of the refund is dependent on other factors with respect to the Seller’s circumstances. This whole process is about getting a refund and should be as tightly coordinated as possible. The Seller will want that money as soon as possible after the completion of the sale. Case closed!
Best Time to Sell
The non-resident should be strategic about the timing of selling their Canadian property. Simply because they don’t want to miss the deadline of December 31st. That is the deadline for the CRA to issue the Certificate of Compliance. Missing that deadline means the non-resident Seller will have to wait 12 months to file their Canadian Income Tax. It is only when the CRA has reviewed the Seller’s personal income tax, will they issue a refund.
Several factors should be considered, especially how long will the property sit on the market. However, if priced properly (and really, is there any other way?) it might take 30 – 60 days, for a luxury detached ski-in ski-out home, it might take longer as there are fewer Buyers.
Keep in mind, that once the property has sold it can take at least 2-3 months to receive a Compliance Certificate from the CRA. I would suggest that the non-resident seller should be talking with their accountant in early July and listing the same month. , this could be problematic. Receiving the CC could take months.
Point 50. If the vendor does not comply with the requirements of subsection 116(3), and the CRA has not issued a certificate of compliance, the purchaser may become liable under subsection 116(5) to pay a specified amount of tax on behalf of the vendor. The purchaser is then entitled to withhold that amount from the purchase price.
The purchaser is liable to pay and remit 25% of either:
- the cost of the property acquired by the purchaser; or
- if a certificate of compliance has been issued under subsection 116(2), the amount by which the cost of the property acquired by the purchaser exceeds the certificate limit fixed by a proposed disposition.
Purchaser liability assessments are not subject to any time restrictions. Therefore, an assessment may be issued at any time the CRA becomes aware that a vendor or purchaser has not adhered to the requirements of section 116.
A Non-Resident can be a Canadian Citizen
Note that the trigger for the Tax Compliance Certificate and holdback is based on where the Seller “permanently resides”. The Seller can be a Canadian citizen and still be a non-resident of Canada.
Income Tax Act
The Income Tax Act frequently changes, so it is essential to check with your BC accountant for the latest rulings, that only a tax accountant would know about.
The steps above are a guideline as to what you can expect. With an experienced Whistler realtor and a local accountant and lawyer on your team, this will not be a difficult process. If you are a non-resident who is considering buying or selling a property in Whistler, contact Marion Anderson, author of this site. If you have read the non-resident pages, you already know what kind of realtor, and person Marion Anderson is.
If you think I would be a good fit to work with you and your family, and you are not working with a Whistler realtor, please contact me. I look forward to hearing from you.
It’s a Good Life in Whistler!
Marion Anderson Personal Real Estate Corporation
firstname.lastname@example.org (604) 938-3885