Do Non-Residents have to Pay Canadian Tax on their Canadian Property?
If you are a non-resident of Canada you may be wondering if you are entitled to pay Canadian tax for the sale of your Canadian real estate. Let’s find out.
Gilmour Knotts Intercorporated Chartered Accountants explains the options for non-residents of Canada.
If the Canadian property is sold in Canada and owned by a non-resident, there is tax due. However, the risk is on the purchaser, not the seller. If for some reason the tax is not correctly handled at the time of sale, Canada Revenue Agency (CRA) will try to collect tax from the purchaser.
What is the tax amount?
The tax is calculated on the total gross sales price and is not calculated on the profit. The required tax from the CRA is 25% withholding. This is a default rate of tax on the gross sales price of the property.
How do you reduce this tax?
There is an option to apply to reduce this tax. The seller can have the withholding tax reduced to be only calculated on the net profit, rather than the gross sales. For this to occur, the seller must apply to CRA, with full details, prior to the sale or within 10 days after the date of sale/deposition. If the deadline is missed, penalties will be assigned at a daily rate. This makes for a short period of time to apply the option of reducing the tax as it can take a few weeks for the CRA to process, creating a possibility the seller may miss their deadline.
What are the 2 remedies if the seller misses their deadline?
1. “They can file a Canadian tax return with full details and ask for a refund. There are also deadlines for this and there are issues with whether CRA will permit this filing as the first disclosure was required at the time of sale. You cannot wait until tax return preparation time to file the application with CRA. You must start the process at the date of sale and then apply for the refund at normal tax return filing time.”
2. “They can apply to have the tax used as a foreign tax credit in their home country. The challenge with this is that the tax may be much higher than the home country tax and although they get a credit they do not get a refund.”
What forms are involved?
T2062, T2062A and non-resident tax returns
If you have any questions regarding the above, please give us a call at 604-588-4466 or email us at firstname.lastname@example.org