Do non-residents of Canada pay capital gains tax?
Allan Madan, CPA, CA
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:
- Selling price
- Selling costs (deducted from selling price)
- Purchase price of the property, plus closing costs
- 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.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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
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.
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.
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.
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?
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
Hi
here’s a scenario i’m facing. I’m a non resident owing a property in ontario and gifting it to my daughter who’s a canadian citizen. there’s a capital gain of $150,000. how does the capital gain tax works in a case of a gift or what would be the best way to handle it to reduce Capital gain tax?
Thank you
Hi Rafael,
The gift to your daughter by you will be treated as a taxable sale, with the selling price equal to the market value of the property on the date of the gift. In your case, this will result in a capital gain of $150,000. You will have to apply for a Certificate of Compliance from the CRA and pay a capital gains tax equal to 25% of the capital gain (i.e. 25% x $150,000). In addition, you will have to file a Section 116 Non-Resident Tax Return with the CRA to report the capital gain.
Hi
I am a non-resident of Canada and live in the U.S. I have invested in mutual funds through TD Canada Trust and disposed them in 2019. I have a capital gain of Canadian Dollar 7200 through this disposal. I think I have to pay 15% of this gain to CRA. Is this true? If I were to pay the 15% of the gains from the sale of mutual funds, which Form from CRA should I use to report the capital gain?
Thank you for your help.
Hi Nallaya,
Capital gains realized on the sale of Canadian mutual funds should be reported on your US return and taxable in the US only, pursuant to the Canada-US tax treaty. A withholding tax of 15% will be deducted on dividend payments made by the Canadian mutual fund company, and you can claim a foreign tax credit for this on your US tax return. Furthermore, do not file a Canadian tax return in your situation.
Hello, we are Canadians leaving abroad and we were granted non residents status by CRA. We are about to dispose our home in Quebec with estimated capital gain of approximately 200k. What portion of capital gain will be subject of 25% tax? As non residents, are we eligible for 50% capital gain deduction for the tax purposes?
Hi Alex,
As a non-resident of Canada, your lawyer will hold-back 25% of the gross sales proceeds in his Trust Account. To release the hold-back, you must obtain a Certificate of Compliance from the CRA and provide it to your lawyer. With the Application for a Certificate of Compliance, you must make a payment to the CRA for 25% of the capital gain (25% x $200,000). In addition, you must file a Section 116 Non-Resident Return to report the capital gain. When filing the Section 116 Tax Return, 1/2 of the capital gain will be included in your income (i.e. 50% x $200,000) and subject to tax at your marginal tax rate. Upon filing the Section 116 Tax Return, you will likely get a refund for part of the tax you paid with your Application.
I can help you with the entire process above.
So if I sell property in canada and live in the United States. That same year I will need to file a u.s tax return reporting the full capital gains received from the sale in canada? Will I receive a corm to supply my internal tax revenue that shows that exact amount? Will I get money back in the u.s or end up paying more. I am selling this property its 50/50 co-owned with my brother. So I will only need to claim 1/2 the gain. How exactly is this to be done. Can you advise?
Hi Angela,
Your best option is to sell the property in Canada before you move to the US and before you become a tax resident of the US. In this way, you will avoid any US tax implications on the sale of the property. However, if you sell the property in Canada while you are a resident of the US and a non-resident of Canada, then the following will occur:
1. Capital gains tax will be payable to Canada on your share of the profit made on the sale
2. Capital gains tax will be payable in the US on your share of the profit made on the sale
3. A foreign tax credit can be claimed on your US return for the Canadian taxes paid
4. If the property is your primary residence then you can claim the principal residence exemption to offset the taxable gain for Canadian tax purposes
5. You may be able to file an election with the IRS to increase the cost amount of your property to its fair market value on the date that you became a resident of the US
6. Non-residents of Canada are subject to a 25% withholding tax on the gross sales proceeds received from the sale of Canadian real estate. This tax can be recovered by filing an Application for a Certificate of Compliance with the CRA
If you have further questions or require my assistance, please send an email to me: amadan@madanca.com
Hi Allan,
I’m a non-resident in the UK, with property in Ontario that I’m looking to sell. Orig. price was $135k, now worth $300k.
Can you advise on ways of avoiding/deferring/minimizing this while still maximising the proceeds kept from the sale? I see from the existing comments the procedure with CRA, but no solutions to minimizing this (apart from commissions and legal cost deductions, which don’t benefit my cash flow).
Any pointers or solutions that you can advise on would be greatly appreciated.
Sincerely,
Graham
To reduce the capital gain realized on sale claim the cost of improvements made to the property, closing costs paid on the acquisition of the property, and selling costs (e.g. repairs made to make the property ready for sale, commissions paid and legal fees incurred).
Hi Allan,
I’m a Canadian citizen who now lives in the US. I also have a registered consulting business that I run in Canada although I’ve not been able to travel into Canada since last year due to covid.
My wife and I are selling a home that we took possession of in December, 2020 after renting it out for only 6 months. Now we want to sell this property and we’re having mixed messages on the applicable taxes in Canada and the US.
Please, kindly explain in detail how this works so we can understand clearly. Also, we do have 2 more properties under construction in Canada and would like any advice on how to get things done from now on.
Thanks in advance for your help.
Hi Julian,
The buyer’s lawyer is obligated to hold-back 25% of the gross sales proceeds in his/her trust account, because you and your are non-resident sellers. The hold-back will be released upon the CRA processing an Application for a Certificate of Compliance, which I can prepare. With this application, a payment for capital gains tax equal to 25% of the profit made on the sale must be attached. Furthermore, since you are a US tax resident, you will be required to pay capital gains tax to the IRS, less a foreign tax credit for the Canadian capital gains tax paid. Finally, a Section 116 Non-Resident Tax Return must be filed with the CRA to report the capital gain.
You also mentioned that you have an incorporated business in Canada. Please watch out for the US’s subpart F rules in regards to controlled foreign corporations.
Hello :
We are a couple that just to have a time share in Canada, indeed we were co-owners to the property; The Carriage Hills Resort went almost bankrupt because the lack of business and management was forced to sell through court. In October 2022 we received the payment of our share from which was withheld 50% for tax purposes. Could you help us to get the appropriate refund ?
Hi Jose, I can help. I will need to see the details of the withholding tax slip, if any, that they issued to you. Please contact me at amadan@madanca.com to discuss further.
I realized that in column 4 of the form T2062 I might be able to claim exemption on capital gain as a non resident Canadian living in the US based on the treaty agreement. How does it work?
The Canadian property being disposed of must be exempt from tax in Canada pursuant to the tax treaty between Canada and the US. I have never seen a practical example of exempt gains pursuant to the Canada-US tax treaty as it related to form T2062, other than gains from the sale of a primary residence.
Hi,
My wife and I are both non-residents of Canada. Upon getting married, she added me to the title of her home in Toronto which is rented out. We equally own the property: 50-50. Does this transfer count as a disposition on her end?
thanks,
Scott
Hi Scott,
Yes, this counts as a disposition of 50% of the interest in the property by her. However, if you were added to the title after marriage, then the deemed transfer price is equal to the original cost of the property, so there isn’t a gain or loss on the transfer to be reported. NOTE: The income attribution rules will apply such that 100% of the net income or loss from the property is taxable to her as you did not pay fair market value to purchase 1/2 of the property.
Hi,
I am a non-residence of Canada living in US. I have a property in Toronto.. I bought it for 340k.currently the price of the property is 1.2 million. From 2010 to end of 2012, for more than 2 1/2 years it was my primary residence as I was living there. Since it was my primary residence at the time of leaving the US in the end of 2012, I appraised my property with my real estate agent. The appraisal value of the property was 500K. I did my first tax return as a non-resident of Canada in the year 2014 for the tax year 2013. based on the information provided, if I sell my house now, Do I get the primary residence credit of 500k when I calculate my final tax bill to CRA for this transaction. Thank you in advance for your help.
Hi Mohammad,
The cost amount of the property is equal to its fair market value on the date of change-in-use. This is the date that you began advertising your former primary residence for rent. If the value at that time was $500,000, then the cost amount for Canadian tax purposes would be $500,000. If you sell the property for $1,200,000, you will realize a capital gain of $700,000.
Note that you will also have to file an Application for a Certificate of Compliance and a Section 116 Non-Resident Return with the CRA concerning the sale of the property.
In addition to this, I recommend that you file form 8833 with your US tax return for the year of the sale so that you can bump up the cost of the property to its fair market value on the date you emigrated from Canada.
I’m a non resident of Canada for Tax purposes. I bought a home in 2011 for 285K and it was my primary residence until 2018.The value of the property on the month it was rented out was $370 K . Now it is currently valued at $600K . What will be the taxes as per the new budget. Im a non resident from 2022. Thanks in advance.
Hi Nanda,
The estimated capital gain is equal to the estimated sales proceeds of $600,000 over the cost basis of $370,000. This comes to $230,000. Because the estimated capital gain is less than $250,000, only 1/2 of the gain will be included in your taxable income in the year of sale. The estimated capital gains tax payable (if you are in the highest tax bracket) is $62,000. The new rules don’t impact you.