Top Things to Know for Non-Residents Selling Canadian Real Estate
The world is a truly global place these days. We can travel near and far, purchase directly from abroad, or relocate and call a new destination home. A common inquiry we receive is in regards to home sales, particularly when a taxpayer has chosen to depart from Canada and will be selling their Canadian residence. Selling as a Canadian non-resident has nuances and tax implications, which differ from taxpayers who maintain Canadian residential ties. In this post, we'll detail the broad implications and procedure of this type of sale:
As a non-resident seller of Canadian property, these are the following tax requirements:
A request for a Certificate of Compliance must be filed with CRA within ten days of closing/completion date or a penalty of up to $2,500 will apply;
Also a Canadian non-resident income tax return to report the sale must be filed by April 30 in the year following the date of disposition.
The transaction of home sale for a Non-Resident taxpayer will look like this:
Once the seller receives an interim sale agreement on the sale of Canadian real estate, the seller is required to submit a Certificate of Compliance (Form T2062) to CRA before and within 10 days of the closing or completion date. We suggest filing this form as early as possible (in advance of the closing/completion date) to avoid excessive Canadian tax being withheld at closing. Based on our experience, it takes at least 4 weeks for CRA to review and approve the application.
Until the seller’s lawyer receives the approved T2062, the seller’s lawyer will hold back and remit 25% of the sale price (or as high as 50% for rental property) to CRA. In order to avoid the 25% (or 50%) tax being remitted to CRA immediately upon closing, the seller should ask CRA to issue a Comfort Letter upon the receipt of the T2062 application.
Once CRA processes the T2062 application, they will mail out a request for payment for the taxes owing (if any), as estimated on the T2062 form. The seller’s lawyer would remit the requested tax payment to CRA from the 25% (or 50%) funds from closing.
Once CRA receives the payment, the T2062 Certificates of Compliance would be issued. The approved T2062 will allow the seller’s lawyer to return the excess fund (the 25% or 50% withheld at closing minus the actual tax payment as requested by CRA based on the tax calculation as noted on T2062 application) to the seller.
The seller is required to file a Canadian individual income tax return to report the disposition of the Canadian real property by April 30th. Extension to file is not available in Canada therefore the April 30th deadline is non-negotiable.
Please note, the information provided in this article is a general outline and your particular tax situation may require additional disclosure that is specific to you. Tax compliance on sales of Canadian real property by Non-Resident sellers can be an overwhelming process! The extensive experience of our office can assist you with any inquiries you have regarding your filing status, home sale and tax-efficient planning strategies.
Contact us today for assistance.