Tax Considerations When Purchasing Canadian Real Estate

It is crucial to determine whether the seller is a Canadian resident before you buy Canadian real estate. You may have to withhold the purchase price from the seller if the seller is not a Canadian resident. If so, you will need to remit the withheld amount to Canada Revenue Agency ("CRA") You are liable to the CRA if withholding is necessary, even if the payment is not made to the seller.

"Resident" refers to the seller who is a Canadian resident for income tax purposes. This should not be confused for the seller's Canadian immigration status. For income tax purposes, "Resident" is different from that used for immigration purposes.

If you are unable to verify that the vendor is not a Canadian resident, then you won't be held responsible for withholding.

Most standard real estate contracts include a section in which the seller declares that they are a Canadian resident or non-resident for income tax purposes. The declaration may be helpful but it might not protect you from liability. You should also consider other factors that could cause you to doubt the authenticity of the declaration.

• You cannot contact the seller or their agent at other times of the day. Maybe the seller is in another time zone.
• The seller has a foreign telephone number or mailing address.
• The property is currently vacant.
• The seller has given the address of the property as their address, and the property is now vacant.

If the seller gets a clearance certificate through the CRA, then your liability could be reduced or eliminated. You should not be held liable if the final selling price is less than the price on the clearance certificate. If the final selling price is higher than the price on the clearance certificate, you will be required to withhold the difference.

The seller's use and intention to sell the property will determine the amount you must withhold. If the seller uses the property as their home, the minimum withholding amount is generally 25% of the purchase price. The difference can be reduced by obtaining a clearance certificate. If the seller uses the property to rent, the required withholding will be 25% of the land's purchase price and 50% for the building. It is crucial that you fully understand the use of the property by the seller.

If you have any doubts about the seller's tax residency or use of the property, the best thing is to withhold the amount due from the purchase price and remit it to the CRA. You must remit the money within 30 days from the end of each month you acquired the property.