Canada

Non-residents: Here’s how to report the sale of Canadian real estate

TAX ALERT  | 

Non-residents who sell Canadian real estate must complete certain Canadian tax reporting requirements in respect of the sale before taking their proceeds out of Canada.

Here is an overview of the steps involved:

1.     Request tax clearance

Within 10 days of the transaction closing date, the non-resident must file a request for tax clearance (Form T2062 - Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property) with the Canada Revenue Agency (CRA).

The filing establishes the amount of withholding tax to be remitted to the CRA from the proceeds of disposition before the remaining funds can be transferred out of Canada. A non-resident may file the clearance certificate request up to 30 days before the closing date, provided they have a signed agreement.

Without a clearance certificate, the purchaser may be liable up to 25 per cent of the sale proceeds as a withholding tax. Real estate attorneys typically reserve 25 per cent of the purchase proceeds in trust until the clearance certificate has been issued by the CRA.

Processing of the clearance certificate and the final tax return can each take as long as six months.

2.     Pay the tax

Once the clearance certificate has been issued the certificate amount, that is, 25 per cent of the capital gain, must be remitted from the sale proceeds to the CRA.  Any recaptured depreciation expense deducted against rental income will suffer a 50 per cent withholding tax rate.

If the non-resident did not report rental income then CRA will withhold the clearance certificate until tax returns to report the missed income are filed and assessed which may cause a delay of more than 12 months.

3.     Recover a portion of your payment

The withholding tax paid by the non-resident is often greater than the actual tax calculated on the capital gain to be reported in a personal income tax return for the period in which the sale occurred.  In those cases the non-resident is entitled to a tax refund which they may initiate by filing a Canadian tax return.

 

 

 

AUTHORS


Subscribe to our newsletters

Subscribe


HOW CAN WE HELP YOU?

Contact us by phone +1.855.420.8473 or submit your questions, comments or proposal requests


Recent Tax Alerts

Implementation errors can be rectified in certain circumstances

Rectification is a legal remedy that allows a court to intervene to correct mistakes if certain conditions apply.

  • May 26, 2019

New legislative proposals relating to the Excise Tax Act

Draft legislation expands on GST/HST rules for holding corporations, drop-shipment, freight transportation services and virtual currency.

  • May 24, 2019

Quebec's Netflix tax targets non-residents

As part of the changes enacted to its sales tax legislation, Quebec will now tax Netflix, Amazon and other U.S. streaming services.

  • May 21, 2019

Audit agreements: What you should know

Audit agreements provide taxpayers with greater certainty and less litigation when it comes to tax enforcement.

  • May 15, 2019

Provincial & territorial budgets 2019: An overview of changes

A compilation of business and personal tax changes of significance for each province and territory for quick reference.

  • May 13, 2019