How Tax Works For A Non-Resident Buying An Investment Property

As A Non-Resident Buying An Investment Property in Canada, you should have adequate understanding of the different taxation rules imposed on you by the CRA and the effect it will have on your investment. With your non-resident status, you can still invest in Canadian property which depends on the nature of the investment. You will be required to pay tax on all the income from Canada received by you. Your investment is considered as a passive income which will be tax at 25% directly at the source by the tenants as by the Canadian tax law part XIII and XIV.

When you receive rental income from real or immovable properties in Canada, a non-resident tax at the rate f 25% must be deducted by the payer, such as a tenant or property manager. This deduction will be done on gross rental income that you have been paid or credited. The payer is required to remit the tax to the Canada Revenue Agency (CRA) on or before the 15th day of the month following the month in which the rental income was credited to you.

Example of how this works:

For instance, you buy a building of 3 units (none for you if you want to keep the status of non-resident), and then you rent it out for 3 000$ per month (1000$ each unit). The tenants of each unit must remit 25% of the rent at the Canada Revenu Agency each month and give you the 75%

Capital Gains Tax:

The tax treatment of any gains on the sale of Canadian real estate depends on whether the gain is treated as a business income or as a capital gain. Generally, if the non-resident decides to actively buy and sell real estate as inventory, then the operation is likely to be considered a business and will be taxed on the full amount of the gain.

Usually, the normal Canadian tax rates will be applied to 50% of the gain for sales if there is a capital gain. In other words, a non-resident is required to pay an estimate of the tax before the sale, an amount of 25% of the gain. The CRA will issue a Tax Clearance Certificate to the vendor after payment have been made. If a purchaser does not receive this Certificate from the vendor, the purchaser, is required to withhold tax and remit as tax to CRA 33.3% or more of the gross purchase price from the vendor.

The vendor is expected to submit a Canadian income tax return reporting the gain minus the actual selling expenses before April 30th following the calendar year of the sale. This will result in a tax refund of part of the taxes that were paid on closing back to vendor.

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