Do non-residents of Canada pay capital gains tax?

Allan Madan, CA
 Dec 6, 2013
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Non-residents of Canada are required to pay tax on capital gains resulting from the sale of Canadian real estate. Failure to do so can result in huge penalties levied by the CRA.

Sale of Canadian Real Estate by Non-residents of Canada

Under Section 116 of the Income Tax Act, non residents who sell Canadian real estate have to inform the CRA about the sale prior to the sale or within 10 days of the sale. As well, payment to cover the resulting tax payable must be submitted to the CRA with the appropriate notification form. The most common form used is T2062 – Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property. The T2062 can be found on the CRA website

The CRA will issue a Certificate of Compliance after reviewing the document and receiving the correct payment for the tax. All supporting documentation should be included with the form submitted in order to avoid any delay in processing of the certificate.

Important Note:

Non residents pay capital gains tax of 25% of the profit / capital gain realized on the sale, so long as the payment is accompanied with the Application for a Clearance Certificate (Form T2062).

If the non-resident seller does not inform the CRA of the sale by the deadline, he/she will be subject to a penalty of $25 for each day the notification is late. The minimum penalty is $100 and the maximum is $2,500. As well, if the CRA is not informed and the Certificate of Compliance is not issued, the buyer will have to withhold and remit taxes to the CRA. The amount of the withholding tax is 25% of the gross selling price, as opposed to only 25% of the capital gain.

Tax Treaty

Am I liable for capital gains tax? Yes, non residents of Canada are liable for capital gains tax on the sale of Canadian real estate.

In order to prevent double taxation, Canada has entered into tax treaties with many countries across the world. Generally speaking, you will have to pay capital gains tax in both your home country and in Canada on profits earned from the sale of Canadian real estate. In most cases, the tax-treaty between Canada and your home country will permit you to claim a foreign tax credit on your home country’s tax return for the Canadian taxes paid.

Filing Tax Returns for Non Residents of Canada

Upon the sale of a Canadian real estate, non-residents of Canada are usually required to file a Canadian tax return.

The following information should be reported on the non-resident tax return in respect of the sale of Canadian real estate:

  1. Selling price
  2. Selling costs (deducted from selling price)
  3. Purchase price of the property, plus closing costs
  4. Capital gains tax paid with the Clearance Certificate

In most instances, the seller will receive a tax refund upon filing a non-resident tax return. This is because selling costs are claimed as a tax deduction on the non-resident tax return, thereby reducing the capital gains tax payable.

Also, see my blog called Tax on Real Estate Sales in Canada for more information.

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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