Perhaps you moved out of the country for a few years and then decided to make it permanent or you have purchased property in Canada as an investment to generate income.
No matter the reason, you should be aware that Canada imposes a withholding tax on the rents and sale of real property.
Knowing the highlights can help you avoid nasty surprises when the tax man comes calling.
Real Estate & Tax Residency
Although the ownership of a residential property in Canada may be considered a significant residential tie, the property in Canada must be available for your occupation.
By renting the property, under a long-term lease to an unrelated third party, you may be able to avoid t being considered a resident for tax purposes.
Principal Residence Exemption
If you are leaving Canada, you can likely claim the principal residence exemption and avoid any immediate gains.
If you sell your home after you leave, the issue becomes more complex because you cannot claim the principal residence exemption for years in which you were not a resident of Canada.
You will also be subject to the 25% withholding tax applied on gains of the sale of real estate located in Canada.
Tax On Rental Income
Renting the property may generate much needed cash flow and may be more than sufficient to maintain the property while you are away.
Like most endeavours, rental income is still subject to Canadian income tax.
There are withholding taxes as well as annual non-resident rental tax filing requirements that you must comply with if you are a non-resident earning rental income from Canadian real estate.
Failing to comply with these requirements could result in significant interest and penalties. Some filing requirements must be met even if you never rented the property.
Final Words
Owning and renting property as a non-resident or former resident of Canada can carry with it significant tax obligations for non-compliance. There are withholding taxes that must be remitted monthly if the property is being rented and penalties for the failure to comply can be significant.
If you are a non-resident and are renting property in Canada, it is important to make sure that you are filing the proper returns and making the required installments.
We Can help
We can help you comply with these important regulations by assisting with the necessary filings and help reduce the overall tax burden.
If you have not complied for several years, there are programs available to help bring your tax situation up to date.
Call us at +1 (289) 288-1206 or send us an email to arrange an appointment to discuss your situation and what we can do to help.
