Owning property in Canada can be a smart investment, even if you live outside the country. But for non-residents, there’s more to consider than location and price. The Canadian government has specific legal obligations and tax responsibilities for foreign owners, from acquisition restrictions to rental income rules and sale requirements.
At Accounting Montreal, we help non-residents navigate these complexities with ease, so you can focus on your investment, not the paperwork.
Who Is a “Non-Resident” for Tax Purposes?
For Canadian tax purposes, a non-resident is someone who does not have significant residential ties to Canada and is not considered a factual or deemed resident.
Even if you own property in Canada, you may still be classified as a non-resident if you live abroad most of the year.
1. Buying Property as a Non-Resident
Federal Restrictions: Prohibition on the Purchase of Residential Property by Non-Canadians
- Since January 1, 2023, most non-Canadians are prohibited from buying residential property in Canada for two years.
- Violations can result in fines up to $10,000 and possible court-ordered sale of the property.
Provincial Foreign Buyer Taxes
Some provinces and municipalities impose extra costs for non-resident buyers:
- British Columbia: Additional 20% Property Transfer Tax in Metro Vancouver and certain regions.
- Ontario: Non-Resident Speculation Tax (NRST) applies to specific areas, at rates up to 25%.
- Quebec: Currently no foreign buyer tax, but municipal and provincial regulations still apply.
Other Upfront Costs
- Land Transfer Tax (varies by province)
- GST/HST on new or substantially renovated properties
- Legal fees, notary costs, and property inspections
2. Ongoing Ownership Costs
- Municipal Property Taxes – payable annually based on assessed value.
- Underused Housing Tax (UHT) – federal 1% tax on the property’s value, applies to most non-resident owners of residential property unless exempt.
- Maintenance & Insurance – recommended for protecting your investment.
3. Earning Rental Income as a Non-Resident
If you rent out your Canadian property, the Canada Revenue Agency (CRA) requires tax to be withheld at source.
Default Withholding (Gross Basis)
- 25% of gross rental income must be withheld and sent to CRA monthly.
Reducing Tax With an NR6 Election
- File Form NR6 with a Canadian agent before rental payments start.
- This allows you to pay tax on net rental income (after expenses) instead of gross.
- Requires annual T1159 Section 216 return to report income and expenses.
Filing & Reporting
- The payer (tenant or property manager) issues an NR4 slip showing gross income and tax withheld.
- All filings must be made on time to avoid penalties.
4. Selling Canadian Property as a Non-Resident
Withholding at Sale
- The buyer must withhold 25% of the gross sale price (proposals to increase to 35% for residential properties also exist).
- This is not the final tax but a holdback until CRA processes your sale.
Clearance Certificate
- File Form T2062 with CRA before or immediately after the sale to reduce withholding to the estimated tax owing.
- It can take up to 3 months to obtain; plan early.
Capital Gains
- Any profit from the sale is taxable in Canada.
- You may claim a foreign tax credit in your home country if a tax treaty exists.
5. Common Compliance Mistakes to Avoid
- Not filing an NR6 before the first rental payment.
- Missing the T1159 Section 216 return deadline.
- Not paying UHT even if the property is vacant.
- Selling without a clearance certificate results in higher withholding.
How Accounting Montreal Can Help
We specialize in non-resident property tax and offer:
- Guidance on purchase and ownership compliance
- Preparation and filing of NR6, T1159, NR4, and T2062 forms
- Strategies to reduce withholding tax and maximize deductions
- Ongoing representation with the CRA
- Coordination with your home country’s tax advisor to avoid double taxation
Owning Canadian property as a non-resident can be profitable, but the tax rules are complex. Mistakes can be costly in penalties, missed deductions, and even forced sales.
Let Accounting Montreal handle the details so you can enjoy the returns.
Call us today or visit our Contact Page to get started.
Reference:
Canada Revenue Agency – Non-Residents and Rental Income
