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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Comments 6

  1. As a non-resident, I’m about to sell my property in Ontario. Could you please let me know what expenses can be tax deductable when calculating the tax amount

    1. Hi James,
      Commissions and legal fees can be deducted from the sale proceeds when calculating a capital gain. In addition, closing costs paid when the property was purchased, and the cost of capital improvements made to the property during the period of ownership can be added to the cost amount of the property. A non-resident selling a Canadian property must submit an Application for a Certificate of Compliance within 10 days of the closing date. In addition, the non-resident must file a Section 116 Non-Resident Return with the CRA to report the taxable capital gain.

  2. Long term capital gain from sale of property in India by Canadian citizen.
    If it is transferred on 9/January/2018
    How the income from the property will be calculated in Canada and India. Since the tax assessment year in India is
    different. Once TDS is deducted on the 100% of the sale value. How we can adjust that in Canadian tax calculations.
    I mean the cost base indexing of the property plus other operating expenses of the non income property.

    1. Hi Vinod,
      Follow these steps to calculate the tax payable on the sale of Indian property by a Canadian resident:

      Determine the cost basis of the Indian property. For Canadian tax purposes, the cost basis is equal to the purchase price, plus closing costs, converted into Canadian dollars using the foreign exchange rate as of the closing date. If the property was acquired before you became a resident of Canada, then the cost basis is equal to the fair market value of the property (expressed in Canadian dollars) on the date that you became a Canadian tax resident.

      Determine the selling price of the property and selling costs. Selling costs include legal fees and commissions paid to a real estate agent. Convert the selling price and selling costs into Canadian dollars using the ‘spot rate’ on the date the transactions occurred.
      Subtract the selling costs from the sales proceeds to arrive at the Net Sales Proceeds.
      Calculate the capital gain. The difference between the Net Sales Proceeds and Cost Basis results in the Capital Gain on the sale of the property.

      Take one half (50%) of the capital gain and include the resulting amount in your Canadian personal income for the year.
      Claim a foreign tax credit on form T2209. The foreign tax credit is the lesser of (a) the Canadian taxes payable on the Capital Gain and (b) the Indian taxes paid as per the Indian Tax Return and Indian Notice of Assessment.

  3. Hi,
    I am a non-resident and I have a property in Ontario. the price of the property from the day we used the property as a rental property to now has gone up from 220K to 480K (CAD). We would like to sell it and buy another property in the US. Do you know exactly how much we will be losing over capital gain taxes ? do we need to pay taxes in the US again? How can we avoid or minimize capital gain tax?

    1. Hi Leily,

      Thank you for your questions. Your Canadian lawyer is obligated to hold-back 25% of the sales proceeds because you are a non-resident of Canada. For example, if you sell your Canadian property for $480,000, then your lawyer will hold-back $120,000 of taxes. This tax can be recovered by filing an Application for a Certificate of Compliance with the Canada Revenue Agency. With the application, you must submit a payment to the Receiver General of Canada for 25% of the capital gain, which amounts to $65,000. Once the Certificate of Compliance is issued and you provide a copy of the Certificate to your lawyer, the hold-back will be released to you.

      Furthermore, as a US tax resident, you are taxable on global income. The US capital gains tax rate is as high as 20%. Therefore, a capital gain of $260,000 ($480,000 selling price less $220,000 cost) will result in US capital gains taxes of $52,000. You can claim a foreign tax credit on your US return for the Canadian taxes paid, and so your US capital gains tax of $52,000 should be reduced to $0 after the foreign tax credit is applied.

      Please let me know if you need assistance with preparing the Application of a Certificate of Compliance, and/or your US tax filings. My email address is amadan@madanca.com

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