Tax Considerations When Purchasing Canadian Property

If you're buying Canadian real estate, it's crucial to determine if the seller is "resident" of Canada or not. In the event that the buyer is non-resident of Canada and you are required to withhold from the the purchase cost to the seller and to pay the amount you withheld in cash to Canada Revenue Agency ("CRA"). If this is the case and you're accountable for be liable to CRA in respect of the amount withheld regardless of whether you complete the withholding of the purchase price for the sale.

"Resident" means the seller is a resident of Canada for tax purposes. This is not to be confused with the seller's status as an immigration holder in Canada. "Resident" has a different definition for tax purposes related to income as opposed to immigration reasons.

In general, you won't be responsible for the withholding if , following a reasonable investigation, you do not have any reason to suspect that the seller is living in Canada.

Conventional real estate contracts typically contain a clause where the seller states whether they are residents of Canada and if they are a non-resident in Canada for tax purposes. While the declaration can be helpful however, it might not be enough to shield your from responsibility. Be aware of other aspects that could cause you to doubt the validity in the statement, for example:

• The agent or seller is only able to be reached during odd hours of the daytime. It could be that the seller is located in an area with a different time zone.
• The seller has a foreign postal address or phone number.
• The property is unoccupied.
• The property is unoccupied and the seller provides the address of the property for their home address.

Additionally the liability of your company could be reduced or even eliminated when the seller receives an authorization through the CRA. If the price at which you sell the item does not exceed the amount listed in the certificate of clearance you shouldn't be liable for any obligation. If the final sale price is greater than the amount stated on your clearance document then you have to take a withholding on the basis of the price difference.

The amount you must withhold will depend on the usage of the property you are buying. For instance, if a owner uses the property as their residence, then the minimum withholding amount is 25 percent on the cost of purchasing (or 25 percent of the difference in the event that the seller gets the clearance certificate). If, however, the seller intends to use the property as a rental The required withholding is 25 percent of the price of purchase for the land, and 50 percent of the cost of purchasing the construction. It is therefore crucial to know how the seller uses the property.

If you are unsure about the tax residence of the seller or the usage that the home is being used for, the best option is to withhold the appropriate amount from the amount to purchase. You then pay the withholding in the direction of the CRA. The remittance should be received within 30 days after the expiration of the month that you bought the property.