Non-Resident: Selling Your Whistler Property – What You Need To Know

This selling as a non-resident page offers you an overview of what to expect, and the timeframe involved in selling your Whistler property. If you want the summary version, read the blog post entitled Non-Resident: Tax on Capital Gain

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 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. 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 the time it takes. Spoiler alert: On the completion date you may not receive all the proceeds 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.

1. Non-resident: Buying
2. Non-resident: Buying Process
3. Non-resident: Finance and Funds
4. Non-resident: Owning
5. Non-resident: Taxes and Fees
6. Non-resident: Selling
7. Non-resident: FAQ

FAQ

Summary of the 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 real estate 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 on a calendar year-end basis and filed by April 30th of the following year.

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.

The blog post on the Legal Process for Completing the Sale is a good read that will tell you the process of completion.

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.

Before the Completion Date

1. When the property is sold, tax may be due on the capital gain. At the time of completion, your accountant should have determined what tax is due on the capital gain. I was informed by a Whistler lawyer that the Buyer’s lawyer and the Seller’s lawyer typically agree that the Seller’s lawyer will hold back a significant amount of money when the sale proceeds are received. The hold-back of funds is in anticipation of the CRA calculating and requiring payment of the Withholding Tax long after the sale has been completed.

The hold-back amount depends on various factors, that are too complex for this page. The Buyer’s lawyer will influence the hold-back amount, which will be stated on the Statement of Adjustments prepared by the Buyer’s lawyer. The hold-back is a minimum of 25% and may be as much as 50% of the sale price.

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 hold-back amount. These would include at least the original purchase cost of the property plus any significant capital improvements. The Buyer’s lawyer (and accountant) must agree on this amount of hold-back funds. For ease of understanding, this example below is based on a 25% hold-back.Sale Proceeds

2. For example, the non-resident’s Whistler property sold for $1,000,000 CAD, and the transaction was completed on May 1st. The Buyer’s lawyer has transferred the $1,000,000 CAD plus/minus the balance of the Buyer’s and Seller’s Statement of Adjustments expenses to the Seller’s lawyer for distribution. The title has transferred and the Seller’s lawyer has received the funds.

The Royal Bank of Canada and the Toronto Dominion TD Bank of Canada are two banks that will not allow the proceeds of the sale to leave the bank without the bank account holder being in the bank to authorize the transfer. The bank can document and verify your identification and I expect this method was put in place to cut down on money laundering.

For example: your lawyer deposits the sale proceeds into your Canadian bank account. Then you have the option of flying over to Canada to the closest branch and authorizing the release of your funds. The other option is for your lawyer to arrange for documents to be authorized by a notary in the country you are in. Since electronic copies are not acceptable, the documents need to be sent from your lawyer to the notary by mail. Then your signature is witnessed by a notary and the documents have to be returned by mail to the lawyer. A third option is setting up a Power of Attorney, but that again is just a piece of paper so no doubt the banks will also be nervous about that. Hence the reason, sellers fly over to Canada to release what can be millions of dollars. Yes, this is inconvenient, but directing your lawyer to wire the proceeds directly to your personal bank account in your home country should avoid this hassle.

Managing the Hold-back

3. 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.

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. The Seller needs 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 actual taxable gain on the sale of the property. The tax rate is 50% of the net capital gain. This is the same rate for a Canadian selling their Whistler property. For example:

• You bought the property for $1,000,000 and sold it for $3,000,000.
• The taxable capital gain of 50% of $2,000,000 is $1,000,000.
• Then the selling costs would be deducted, for example, selling costs were $100,000.
• Therefore the taxable capital gain would be on $900,000.
• It is important to speak with your accountant to discuss any expenses incurred while owning the property, for example, repairs and maintenance. This may affect the net calculation.

The documents required for this calculation include but are not limited to:

• Contract of Purchase and Sale documents
• Statement of Adjustments
• Invoices for capital improvements
• Canada Customs documentation for any goods imported into Canada.

Note A: Capital improvements have a specific meaning to the CRA and your accountant. Renovations are viewed differently from renovations that may have been the result of a repair and maintenance issue. Review with your accountant the definition in each situation to determine whether the expenses to be calculated were from a capital improvement. Taking photos of the before and after is always a good strategy.

Note B: Repairs and maintenance costs are 100% deductible against rental income.

Ten 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 quarterly or annually, 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 hold-back funds. If you are confused, re-read point 3. Please note, that this is not the final tax calculation on the capital gain of the sale. The Sellers now have to submit a personal tax return. There should be a refund due to you after you file your personal income tax. However, it does mean that the CRA is withholding your money until that personal tax is paid, or deducted from the Withholding Tax amount. Read on to Tax Disposition Part 2.

Balance of Hold-back Released

10. With the Withholding Tax paid to the CRA, the Seller’s lawyer releases the balance of the 25% holdback to the Seller.

Compliance Certificate

11. Upon receipt of money to pay the Withholding Tax, the CRA then releases a Compliance Certificate to the Seller and a copy to the Buyer.

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.

The Withholding Tax is an amount of money that the Government “withholds” until they receive the Seller’s personal tax return.

Timing on Filing Personal Income Tax

12. There is no deadline for the CRA to issue the Certificate of Compliance. It is better to file your Compliance Certificate several months before you file your personal tax return so that you know that the CRA has accepted the figures presented by your accountant. Your accountant will advise you on timing and any possible ways to work around the process.

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.

CRA Refund

13. The CRA is withholding the Seller’s money, called the “Withholding Tax”. (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!

Tax Treaty

14. A non-resident would file with an accountant in their own country to determine if the Tax Treaty between Canada and their country will result in only paying the tax on the capital gain in Canada. The Tax Treaty with Canada has different rulings in each cooperating country. 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.

Best Time to Sell

As a non-resident of Canada, is there a better time to sell my Whistler home? This is a difficult question to answer because It depends on market conditions and the complexity of acquiring the Compliance Certificate. Ideally, if the sale was completed by October that should give the Seller time to get their Compliance Certificate and file their personal tax return by April 30th. However, there are many factors involved. Talk with your accountant and explain your situation to them including all the capital improvements that have been done to the property.

Purchaser’s Liability

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:

1. the cost of the property acquired by the purchaser; or
2. 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.

Next Steps

Buying real estate in Whistler, whether ski-in/ski-out or not, is a smooth process when working with an experienced Whistler real estate agent who follows the rules. Everything in real estate, except for writing the contract and the negotiation is a process. Experienced realtor, and skilled negotiator, Marion Anderson will work with you directly from start to finish. No assistants are involved.

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.

It’s a Good Life in Whistler!

Marion

Marion Anderson Personal Real Estate Corporation

marion@WhistlerSkiinSkiout.com (604) 938-3885