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PURCHASING PROPERTY IN CANADA?
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PURCHASING A PROPERTY IN CANADA ?
YOU'RE NOT A CANADIAN RESIDENT ??
... SOME THINGS YOU MAY LIKE TO KNOW:
1) Rental property income tax - GET A CANADIAN AGENT !!
As a non-resident of Canada, you are obliged by treaty to remit tax to Canada Revenue Agency (CRA ... formerly Revenue Canada) on rental income earned in Canada. Ultimately, you should pay tax equal to about 22% of your NET RENTAL INCOME. The mechanism whereby Canada gets its cut can follow one of two routes.
a) As you are likely to be collecting your rent through a management company, that company may have to withhold 25% of that rent and remit it directly (monthly) to CRA. That gives Canada far more tax than it deserves ! The ball is in your court. To recover the excess you must file a Canadian (T1) income tax return before April 30th of the following year. You will report your NET CANADIAN rental income. CRA will then cheerfully refund the excess. Interest ?? Hey, we have to chop down the deficit some way !
b) You can name a Canadian agent who will be responsible for remitting 25% of your NET income to Ottawa. That agent is your legal representative. If Ottawa determines that it has been short changed or that its 25% arrived too slowly your Canadian agent will be morally, ethically, spiritually, physically, positively, absolutely, undeniably responsible for the unpaid debt. (You must inform the government annually as to the identity of your agent. Form NR6 should to be filed before the calendar year commences.) You MUST file a T1 return in this case.
2) Selling your property - GET YOUR TAX WORK DONE EARLY
If you have the good fortune of selling your Kimberley property for more money than you paid for it, CRA will be there to celebrate with you ! It will expect that you hand over a capital gains tax. There are a few possibilities to this one as well. The simplest (and most painful) way is to have 25% of the gross proceeds as it relates to land and 50% of the gross proceeds as it relates to buildings mailed to CRA when the property is sold. Before April 30th of the following year you should file a Canadian (T1) income tax return. You will report your taxable capital gain (50% of the difference between buying and selling prices, reduced by selling costs etc.) CRA, once again, will refund the excess taxes remitted.
There is a better way. You can provide CRA with sufficient documentation to prove the cost of your property. The information must be provided to CRA in a timely manner so as to allow a ruling before the sale is closed. You will then have to remit 25% of the net gain re:land and 50% of the net gain re:buildings. Once again an income tax return would be filed before April of the following year to recover any surplus taxes paid.
Taxable capital gains = 50% of capital gains.
The first $32,000 of taxable capital gains is taxed at about 22%; The next $33,000 is taxed at about 31%; the next $49,000 at about 40%; the remainder is taxed at about 44%.
3) Goods and Services Tax (GST) - GET A GST NUMBER ?
If you are acquiring a business property - one which is being rented out to numerous tenants over a short period of time ... a condo at the ski hill is the most typical ... then 6% GST will be added to the purchase price. This CAN be avoided by first obtaining a GST number from CRA. This not only allows you to avoid the tax, but also allows you to recover any GST included in the cost of operating the business. BUT ... YOU WILL HAVE TO COLLECT AND REMIT 6% GST FROM YOUR GUESTS AND SHOULD THAT BUSINESS PROPERTY EVER BECOME YOUR PERSONAL RESIDENCE YOU WILL BE ASSESSED GST ON THE MARKET VALUE OF THE PROPERTY AT THAT DATE.
There are (of course) other taxes ... a 1% property purchase tax when you purchase a property ! There's also municipal property taxes ... an annual levy based on the property value and an approved tax rate. You're in Canada ... there's also provincial sales tax on most of the goods and many of the services which you need to maintain your property. As a hotelier you will also collect and remit 8% PST from your guests. So ... pour yourself a drink (10% PST; 6% GST) and relax. You can't do anything about any of the above.
We're very well taxed but we love it here !
(UPDATED: 15-May-2004)
Submitted by:
Michael Grossman CA
1215 - 12th Street South
Cranbrook, BC V1C 1X2
ph: 1(250)5575 or fax: 1(250)489-5581
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