|
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.
Immigration
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, go to David Aujla Immigration Lawyer , http://www.ccra-adrc.gc.ca/tax or contact an Immigration office close to you.
Part Timers
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.
Tax Consequences
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
Rented Monthly
-
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.
|