Non-residents are allowed to invest in property in Canada as foreign owners, as you don’t need to be a Canadian citizen to purchase real estate. However, there is some important information they should be aware of before doing so. There are different categories of foreign investment including non-resident investment, non-resident vacation and planned permanent resident.
If you’re a non-resident of Canada, you should be aware of the taxation laws which are in place regarding the income on investment property in Canada. It’s also recommended that you know the rules about selling the property or changing the ownership of it through inheritance. The best way to do this is to consult a licensed mortgage broker and tax specialist for the information needed, or the Canada Revenue Agency.
If you’d like to purchase a home and live in it part-time during the year, you’ll need to be aware of the rules for non-resident investment. Also, you’ll need to find out if you’re required to pay income tax in Canada. Foreign homeowners currently need to pay Canadian income tax if they reside in the country for at least six months of a calendar year.
Planned permanent resident
Foreign homeowners who plan to live in their home in Canada on a full-time basis will need to become a permanent resident of the country. To find out the rules, regulations and requirement process, it’s advised you contact Citizenship and Immigration Canada. In addition, you should consult the government of the country you currently reside in regarding this.
Do foreign investors qualify for Canadian mortgages?
The current laws enable non-residents to purchase a home if they have a down payment of approximately between 35 and 50 per cent. Potential homeowners will be interviewed via email or phone to gather all of their personal information such as income, assets and liabilities, and each application is treated as unique. Most applicants will find out if they’ve been approved about 24 to 48 hours later.
The documents needed are much the same as they are for Canadian homebuyers, as items such as credit ratings, income tax returns, identification, appraisal of the real estate and banker’s reports may be asked for. International investors are also required to open a bank account in Canada to take care of the mortgage payments. A Canadian notary public or lawyer will be needed to prepare the mortgage documents as well as the registration for the Land Titles office. The balance of the real estate purchase will need to be paid in Canadian funds by a bank draft or certified cheque.
Canadian income tax
Non-residents of Canada who earn income from their properties will be taxed by the Canadian Revenue Agency. This tax is calculated separately from local government and Harmonized Sales Tax, and the tax year for individual non-residents is from January 1st to December 31st. The tax year for foreign corporations is the normal fiscal year-end. The property income and/or income tax is collected from the source of payment. The actual amount owing will be determined once the tax return has been filed and assessed. The income tax owed is determined from a property’s net income only. This is the total of the income, less the depreciation and other allowed deductions.
The income tax rate will vary, but there is a minimum of 20 per cent for foreign individuals and 31 per cent for corporations. There are specific tax forms which need to be filled in and it can get quite complicated. For more information on current income tax laws for non-residents please feel free to contact us at MortgageMeister.com, as well as speak to a tax specialist.
Goods and Services Tax
The Goods and Services Tax (GST) in Canada is currently five per cent. It’s charged on most goods and services and this includes short-term rental accommodations. International investors may have to register as well, if they earn income from short-term property rentals. In some cases, they will be able to defer GST payments on rental-property expenditures or become eligible for refunds. This also includes the GST payable when the property was purchased. However, if the property is for personal use, the eligibility could be eliminated or reduced. GST returns will generally be prepared with an income tax return, but any payments are often due before income tax payments.
Selling the property
If non-residents sell their Canadian real estate, they will be required to pay income tax if the property is sold for a higher price than it was bought at. The CRA will ask for proof of the sale price, so it’s important you keep all documents to make sure you aren’t asked to pay any unnecessary taxes.
For more detailed information and advice regarding non-resident property ownership in Canada, please feel free to contact us at MortgageMeister.com today to speak to one of our investment property specialists.