Non-residents who overstay in Canada can be deemed to be Canadian residents for Canadian income tax purposes and be taxed in Canada on their world income, even if they have paid taxes in another country.
Non-residents who rent out a property must, by law, remit 25% of their monthly revenue to Revenue Canada in anticipation of filing a Canadian Income Tax Return on their rental 'business' by the end of the next tax year. Timely filing of the required form confirming a net loss on the rental investment may preclude the requirement for the 25% remittance.
When a non-resident owner sells Canadian property, Canadian law requires a 25% holdback of the proceeds of the sale pending filing of a Canadian Income Tax return by the end of the next tax year calculating Canadian tax owed on any Capital Gain. Alternatively, the owner may obtain a 'Clearance Certificate' that may be applied for in advance of the sale. This Certificate may reduce the holdback to a percentage of the capital gain instead.
There is a tax treaty in effect between Canada and many countries, including the U.S., which allows a credit against the tax owed in Canada in the amount of what tax has been paid in the treaty country on any capital gain. Numerous countries have signed tax conventions with Canada. For details on how this may affect your status with regards to income taxation, please consult with your tax accountant.
A withholding tax is imposed on the GROSS selling price of a Canadian real estate property sold by a non-resident. Normally, the vendor applies for a clearance certificate (T2062) to reduce the non-resident withholding tax.
There may still be a big tax refund out there....
The non-resident vendor may potentially claim a tax refund by filing an income tax return to report the gain on the disposition. The refund is due to the following:
- Selling costs (i.e. selling commission and other professional fees) are not deductible on the clearance certificate but are deductible on the tax return.
- The full capital gain is subject to the 25% withholding tax on the clearance certificate whereas only 1/2 of the gain is included in the tax return.
- The withholding tax is based on a flat rate whereas the tax returns are calculated using the personal progressive rates (for individual owners).
- Special claims (i.e. principal residence or donation) may be available to the vendor.
Kindly refer to the attached spreadsheet to illustrate the tax implications for a non-resident selling a Canadian real property.
Caution: Regulations change and exchange rates fluctuate on a regular basis. This information is provided as a guideline only. For details on how any of this information may affect your taxation or legal status, please consult with your tax adviser or nearest immigration center.