As a non-resident investor in Canadian real property, you are required to advise the Canada Revenue Agency (CRA) within 10 days of selling your investment. Normally, this takes the form of an application for a Clearance Certificate since the person who bought the property from you is required to withhold tax and you want to minimize the tax withheld.
In the absence of a Clearance Certificate from CRA, the withholding tax rate is 25% on rental property and 50% on vacant land.
The clearance process is fairly straightforward. You will need to provide the following:
- Completed sale documents once the subjects have been removed.
- Purchaser’s statement of adjustments on the original purchase.
- Summary of capital improvements (not repairs) since you bought the property.
Once CRA receives these, together with the clearance application, they will advise on how much tax is to be withheld. This process may not happen before the sale completes because the section of the tax department dealing with Clearance Certificates is understaffed. So there are three stages to the withholding tax:
- The lawyer will withhold 25% or 50% of the gross sale price, pending receipt of the Clearance Certificate from CRA.
- Upon receipt of the Clearance Certificate, the lawyer will send some of the withholding tax to CRA and release the balance of the funds to you.
- In April of the year following the sale, you will file a Canadian income tax return reporting the transaction and will probably get a refund of some of the remaining withholding taxes because the tax department usually takes too much up front.
Of course, there may be small complications depending on your personal situation. If you are planning to sell your Canadian property, contact one of our professionals for help.
Written by: Doug Johnstone, CPA, CA