There are no restrictions on non-residents purchasing property in British Columbia. There is no citizenship requirement to own land in B.C. There are restrictions on how much time may be spent in B.C. each year as a non-resident property owner. There are also income tax considerations to be aware of when a non-resident rents out a property or sells a property in British Columbia.
Working with a Realtor
For important information on working with a realtor please visit Working With a Real Estate Agent
Non-residents may move permanently to Canada and may operate a business after obtaining legal status by qualifying for immigration. New Canadian immigration rules have been in effect since June 2002. There are five main categories under which individuals may apply for permanent residence to Canada under a point system. For more information about immigrating to Canada, call us at 604-671-7000.
Non-residents may stay in Canada for less than 180 consecutive or cumulative days in a calendar year. For this reason, many international buyers have bought second homes on Salt Spring Island and have adopted a '6 month here and 6 month there' lifestyle.
When the property is ready for occupancy in 2008 the new buyer (assignee) shall complete the sale with the Developer under the same terms and conditions per the original purchase and sale agreement. Please Note: In the event buyer two (assignee) does not complete the said transaction, the developer may go after buyer one (assignor). In this case buyer one should seek Legal Advice.
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.
Lam Lo Nishio, Chartered Accountants:
We have a significant number of non-resident clients who have invested in real estate in British Columbia. Accordingly, we have developed a high level of expertise in dealing with all the issues which arise from such an investment and we want to share this expertise to the benefit of your clients. We are committed to serving you and your clients who have invested in BC.
Some of the planning ideas which we would be pleased to discuss before the deal closes are:
- Ownership structure – What are the advantages and disadvantages of owning personally, jointly with a spouse, through a Canadian company or through a foreign company? What is the difference between legal title and beneficial ownership? What are the advantages and tax implications of using a Bare Trust Corporation? In particular, if your American clients are considering using a US Limited Liability Corporation (“LLC”) to hold the Canadian real estate, please be sure that they get good tax advice from both their American and Canadian tax advisors. There are potential tax disadvantages with respect to this structure.
- Financing – Is it a good idea to finance to reduce income taxes, even if you have the cash? How much should be financed in order to ensure that there are no Canadian taxes payable on annual income but also minimizes rental losses which cannot be carried forward? How does the investor minimize foreign exchange risk? What are the advantages and disadvantages of financing in Canada vs. financing in their home country?
If you have suggestions as to what you and your clients would like to see in our pamphlets and on our web site, please let me know and we will do our best to add such information. If you have suggestions regarding how we can better serve you and your clients, please let us know.
It may interest you to know how we strive to differentiate ourselves from other accountants:
- Don is always personally involved in the work for all clients in some respect and this provides continuity.
- Our team provides services for our non-resident clients and has a great deal of experience in dealing with the issues.
- We generally reply to clients during the same day and guarantee to reply within 48 hours.
- We pride ourselves in the high quality of our work and we consider each client’s unique situation.
- The ownership structure of the investment is very important and will have significant tax implications upon the sale of the property. We spend time and effort discussing the advantages and disadvantages of the various options before they buy. For example, there can be a large difference between sole ownership and joint ownership with a spouse.
- We take a practical approach with the client’s best interests in mind. For example, they may like the idea of joint ownership, but it may not make the most sense from a Canadian tax point of view, and we say so, even though it will mean less fees for us.
- As another example, we discuss the option of filing an NR6 and point out that for smaller investments (e.g. ¼ share ownership in Whistler), it may not be practical.
- We take a long-term approach and if there are ways to save taxes in the long term, we will advise the client (e.g. election to capitalize interest or capitalizing repairs to increase the cost of the property, thereby reducing the future capital gain).
- We recognize that many of our non-resident clients are not familiar with Canadian tax laws, forms or deadlines, so we take full responsibility to ensure that all forms are filed on time (this can take considerable effort following up by e-mail, fax and phone with busy people all over the world who would rather be doing something other than their Canadian taxes). This will often save them interest and / or penalties and / or missed opportunities. For example, if we are unable to contact the client by a deadline, we will often file the unsigned return to try to avoid the late-filing penalty and continue to follow up until we get the signed return.
- We work with a number of the property managers in the Metro Vancouver area for the best interests of our clients (e.g. getting information directly in order to save time, or filing the HST agency election).
- We have invested significant time and effort, and invested in the necessary software, and we are now proud to say that we are totally paperless. This has allowed us to become significantly faster and more efficient.
- We maintain a special file with all necessary documents to support the cost base of the property in order to be able to quickly prepare the request for Certificates of Compliance when the property is sold. We make significant efforts to obtain these documents at the time of purchase and during the period of ownership.
- We use e-mail for sending information and tax returns in PDF format which is easy for clients to read and review (i.e. much quicker and clearer than fax).
- We offer the option of purchasing “insurance” to protect the owner from the cost of a tax audit.
- We do not try to be the cheapest, but rather, strive to be the best.
Thank you and warmest regards,
Don T. Nishio, Ltd.
Lam Lo Nishio, Chartered Accountants
- Canadian Tax for Non-residents Investing in Canadian Real Estate (rented monthly)– 2 page short summary in 3-part folding format (if you wish to print double sided, it becomes a neat 1 page handout, or if you would like color copies, please notify us how many and we will send them to you). This pamphlet would be good for the first-time “window shopper”.
- Tax Considerations for Non-resident Individuals Investing in Canadian Rental Real Estate (rented monthly) – 7 page detailed summary with examples of tax on rent and tax on sale. This pamphlet would be better for the serious investor.
No Rental Income
- Canadian Tax for Non-residents Investing in Canadian Real Estate (No Rental) – This pamphlet specifically relates to properties which are not rented and are owned for personal use only. This is a 2 page short summary in 3-part folding format.
- Tax Considerations for Non-Resident Individuls Investing in Canadian Real Estate (which is not rented) – 5 page detailed summary of things to remember during period of ownership, with examples of tax on sale.