Usually, when a Canadian property is on the market, the current owner is residing in the house. While it’s less common that the homeowner is a non-resident of Canada, these sales do certainly occur. Whether you’re selling or purchasing a property in these circumstances, there is important information you need to know that has an impact on the transaction. Let me explain what sellers and buyers should each be aware of.
Selling as a non-resident
When you sell a Canadian home and don’t reside in Canada, you need to inform the Canada Revenue Agency (CRA). This process involves applying for what is called a Certificate of Compliance, or a tax clearance certificate, under Section 116 of the Canadian Income Tax Act. Since the house isn’t your principal residence, you must pay capital gains tax on 50% of the profit that you made on the sale - in other words, half of the difference between your original purchase price and the current selling price.
To request a Certificate of Compliance you’ll complete a form T2062 or T2062A, depending on the situation. Your taxation number is your Social Insurance Number (SIN) if you used to be a Canadian resident. If you don’t have a SIN, you can obtain a taxation number by filling in a T1261 form. Be aware that you’re legally obligated to let the CRA know that the property has sold within 10 days after the closing date. If you don’t comply with the timeline, you could be penalized $25 for each day you delay up to $2,500.
Buying from a foreign owner
A key matter in purchasing a home from a non-resident of Canada is making sure all applicable taxes have been paid by the seller. The Certificate of Compliance issued by the CRA is the proof you need that no taxation amounts are owing. If the seller hasn’t applied for this document, your lawyer can act to protect your interests by holding back a large portion of the purchase price - up to 25% or more. Once the other party has produced a Certificate of Compliance, the remainder of the funds are released.
Understandably, this critical step can slow down the transaction and create extra concern. Therefore, it’s invaluable to make sure that you hire a very good accountant and a real estate lawyer knowledgeable about these types of sales and that you ask them as many questions as you need to so that you fully understand the process. For instance, although the seller has by law up to 10 days after closing to report the sale of the home to the CRA, they can make the notification immediately when the house has sold. This can help speed up processing the paperwork and alleviate some stress. In addition, if the property is jointly owned by a Canadian resident and a non-resident of the country, this doesn’t absolve the non-resident of their responsibility to inform the CRA of the sale.
As you can see, selling or buying in these circumstances isn’t necessarily straightforward. If you’re looking for more advice, I would be only too happy to assist.
