Non-Resident Tax Matters

Non-Resident Rental Income Compliance

Canada Revenue Agency (CRA) requires all non-residents individuals to pay income tax on rental income earned in Canada. To ensure income tax is paid, a percentage of each monthly rental payment is to be remitted to CRA on behalf of the non-resident.
Three options exist to meet the remittance requirements.

Option 1

The non-resident’s agent (Canadian resident) obtains an account number from CRA;
25% of the gross monthly rent is sent to CRA;
By March 31 after the end of the year, the non-resident’s agent must file a Form NR4 that specifies the gross rents for the year and amount withheld;
No income tax returns are due.

Option 2

The non-resident’s agent obtains an account number from CRA;
25% of the gross monthly rent is sent to CRA;
By March 31 after the end of the year, the non-resident’s agent files a Form NR4 that specifies the gross rents for the year and amount withheld;
The non-resident can file an income tax return within two years of the year end to inform CRA of the actual “net” operating results of the rental property;
Any refund due will be paid after reference to the actual operations (gross revenue and expenses).

Option 3

The non-resident’s agent obtains an account number from CRA;
The non-resident and Agent jointly file Form NR6 that specifies the estimated gross rents and expenses for the year;
25% of the estimated “net” rents are withheld from the monthly rent and sent to CRA by the agent;
Form NR4 is filed by March 31 of the next year with CRA to specify the amount of gross rents and tax withheld;
The non-resident must file an income tax return within six months of the year end;
Any refund due will be paid after reference to the “net” actual operations;
If the income tax return is late (even one day), there is an automatic tax due of 25% of the gross rents.

Miscellaneous

The rate of income tax in Canada on rental income up to $35,000 is approximately 25% of the net income
Travel costs are usually not deductible
Income Tax Compliance on the Sale of Property owned by Non-Residents of Canada
Currently, 50% of the gain on the sale of property is taxed in Canada;
Gain is equal to the sales price minus the cost of the property and other selling costs;
Cost of the property is generally the purchase price;
Other selling costs generally includes real estate commissions, legal and accounting fees, mortgage penalty fees and some other holding costs depending on the circumstances;
The ultimate rates of tax for individuals on “50% of the gain” is approximately as follows:

0 – $45,000	22% (11.0% on the total gain)
$45,001 – $89,000	33% (16.5% on the total gain)
$89,001 – $139,000	38% (19.0% on the total gain)
$139,001 and up	43% (21.5% on the total gain)

To ensure income tax is paid on the sale of property by a non-resident, Canada Revenue Agency (CRA) requires the purchaser of depreciable property to withhold 50% (25% if land only or non-depreciable property) of the sales price until the non-resident vendor supplies the purchaser with a certificate of compliance issued by CRA to withhold and remit 25% of the net profit. The difference between the amount withheld on the sale and the actual tax payable after filing an income tax return will be refunded upon filing the income tax return in March or April of the year following the sale.

Tax laws relate to residential and Commercial properties

Other Items

In some situations, interest and other holding costs (condo. fees) may be added to the cost of the property
Original signatures are not required
Current turn around time by CRA is five to seven weeks – may present cash flow concerns
One certificate of compliance is required for each individual on title

TODD STOKOWSKI PROFESSIONAL CORPORATION

September 2015
Dear Prospective Purchaser
The purpose of the enclosed is to provide you with some general information regarding some of the income tax compliance matters that should be considered when purchasing real estate in Canada.

Two main income tax issues that you will be facing when purchasing property in Canada would be the yearly income tax requirements on any rental income earned (if you rent your property) and the income tax implications on an eventual sale of the property. I have touched on both of these issues.

The enclosed information is based on the laws in place today and does not anticipate all specific circumstances relating to the taxation of non-residents. Professional advice must be sought.

I trust the enclosed will provide you with the information required to make an informed decision. If you require further information, I would be happy to assist you.
Sincerely,
TODD STOKOWSKI PROFESSIONAL CORPORATION

Per: Todd Stokowski, B.Comm., C.A.

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