Whether you plan to make Canada your permanent home now or in the future; relax in a vacation home in our lush cottage country; make your home-away-from-home a convenient urban flat, or simply buy an income-producing property for investment purposes, buying Toronto real estate is generally speaking easy for foreign buyers. Understanding the issues involved in purchasing, leasing, financing and selling a property in Canada will assist you in properly assessing the risks and rewards associated with these types of investments.
The following information applies to non-residents of Canada – and it’s interesting to note that residency does not necessarily have anything to do with citizenship. Even a Canadian citizen will usually be treated as a non-resident if they live in Canada less than a total of 183 days in the year, or has no permanent home in Canada but instead lives abroad.
Prospective immigrants to Canada, often lured to our friendly shores by soaring property prices in the U.K. and Europe, find it easy to travel here to get a feel Toronto Wards Island by Daniel Thorton for real estate opportunities by taking advantage of the affordable direct airfares now being offered by such online discounters as FlightNetwork. Once they have decided on a city, toured different neighbourhoods and viewed properties in person, they are usually pleased to find that there are no restrictions or limits on the amount of property they can buy.
Local lenders such as chartered purchase subject to credit approval (though if you don’t work in Canada, they may require a cash downpayment of at least 35%) so there’s no need to bring a whole suitcase of cash with you. Depending on where you take your business, you may need to provide a letter of introduction from your banking facility in your own home country; your previous income in the home country will also be verified. For more information on beginning a relationship with a Canadian financial institution, please visit the Citizenship & Immigration website.
If you will be purchasing commercial property, GST (Goods and Services Tax) registration may be required.
An added bonus when seeking full immigration (as opposed to ‘visitor’) status: the purchase of a home shows a connection to Canada, and the property is ultimately treated as a part of your overall net worth.
Foreign investors who are purchasing solely for investment purposes and have no plans to live in their Canadian property, but hope to sell it in future for a large capital gain, would be wise to speak to an experienced accountant about all the implications.
One thing’s for certain: non-residents are required to have 25% of the gross rental income of the property withheld and remitted monthly to the Canada Revenue Agency within fifteen days of each month-end, either by the tenant, or by a Canadian representative appointed by the foreign investor. Failure to withhold this tax and to file a tax return can result in stiff penalties.
Buying your piece of Canadian real estate may have been easy and unrestricted, but there are a few things to take note of – besides the profits - when the time comes to sell your property. It’s essential to have a trusted real estate agent guide you through the process. Even after signing on the dotted line, much must be done to ensure a smooth closing.
Non-resident sellers should be aware of the following tax obligations:
- Non-residents are subject to the same Land Transfer Tax on their sale transactions as paid by Ontario residents (the former 20% non-resident tax has been repealed)
- There are deductions to the Land Transfer Tax that may apply for non-resident first time home buyers who plan to use the property as their principal residence within nine months of completing the purchase
- Non-residents must notify the Canadian government via a sale notice within ten days of the completion of the sale transaction, to obtain a certificate of compliance showing that the CRA has received either a prepayment of the taxes owing or appropriate security for the prepayment. If the sale notice isn’t filed, stiff penalties apply.
- In the next year following completion of the sale, non-resident property sellers can file a tax return and hopefully obtain a refund for a portion of their provable improvement expenses, legal fees, Realtor commissions, survey fees, etc., with respect to the property; consult an Ontario Accountant for assistance in preparation of this return
- Read more about the tax obligations for non-resident vendors disposing of real property in Canada on the CRA site.
Where an advocate comes into all this, is to help the non-resident property buyer with such things as obtaining fire insurance (a must for mortgage lenders, and something that can be more difficult to obtain for non-residents); providing Power of Attorney services if you will not be in the country for the closing; referring legal and financial representation you can trust; and helping you navigate the ever-changing immigration and tax laws.