A non-resident earning rental income has a choice of how the income is taxed:

(a) Pay 25% on the gross rents including recoverable expenses received OR

(b) Make an annual election on a prescribed form that must be filed to Canada Revenue Agency (CRA) by January 1st every year to pay tax on the net rental income by filing a Canadian income tax return for the net rental income only. If the tax return is filed late or not at all, the non-resident will be taxed 25% of the gross rents plus interest and penalty.

If the election is made by a non-resident individual, the individual will be taxed at graduated tax rates normally applicable to Canadian residents starting at about 23% up to $42,707 CDN and reaching about 43%, on the net rental income portion exceeding about $132,406 CDN. If the election is made by a non-resident corporation, the combined federal and provincial corporate income tax rate is approximately 29.5% to 35.5% on the net rental income, depending on the province.

 

Sale of Real Estate by a Non-resident

The tax treatment of any gains on the sale of Canadian real estate depends on whether the gain is treated as a capital gain or business income. Generally, if the non-resident is actively buying and selling real estate as inventory, then the operation is likely to be considered a business and will be taxed on the full amount of the gain.

If there is a capital gain, the normal Canadian tax rates will be applied to 50% of the gain for sales after October 17, 2000. However, a non-resident is required to pay an estimate of the tax before the sale, an amount of 25% of the gain. Upon payment, the CRA will issue a Tax Clearance Certificate to the vendor. If a purchaser does not receive this Certificate from the vendor, the purchaser, through their lawyer, is required to withhold tax and remit as tax to CRA 33.3% or more of the gross purchase price from the vendor!

Before April 30th following the calendar year of the sale, the vendor should submit a Canadian income tax return reporting the gain minus the actual selling expenses (sales commission, lawyer's fee, etc..) as this will result in a tax refund of part of the taxes that were paid on closing, back to the vendor.

These are specialized procedures that require experienced tax professionals to ensure the Tax Clearance Certificates are approved quickly and to ensure the lowest amount of tax is paid.

Goods and Services/Harmonized Sales Tax (GST/HST)

Subject to a formula based on price, GST/HST of about 5% to 15% (after July 1, 2010) applies on the purchase and sale of newly built homes that were never previously occupied and any commercial property. There is no GST/HST on residential rent. There is GST/HST for rent on commercial property if the annual gross rent received by the property owner is over $30,000 per year and he has a registered GST/HST number.

GST/HST ranges from 5% to 15% as it depends on the province where the property is located. GST/HST is 13% in Ontario and after April 1, 2013, 5% in British Columbia.

The information presented here is general in nature and is not intended to replace professional advice where facts and circumstances may be different. No action should be taken without consulting your Chartered Accountant. Enquiries related to this article, other tax or business matters and career opportunities should be made