We have acted for many clients who are non-resident Canadian taxpayers selling Canadian Capital Property. We have advised clients who are changing their residency status as they sell. And we have completed many transactions involving non-resident sellers.
It is very important for clients who are non-resident or anticipating changing their residency status to seek accounting, tax and legal advice before selling a Canadian property. There are potentially serious tax consequences that might be avoided or mitigated with good advice and good planning. When a non-resident sells a Canadian property, there is a withholding requirement of 25%, or in some cases 50%, of the value of the property being sold. There is a requirement to obtain a Canada Revenue Agency Clearance Certificate in respect to the assessment and remittance of tax on the capital gain obtained from the sale. Failure to obtain the CRA clearance may result in forfeiture of the holdback.
If you are purchasing property in Canada from a non-resident, you need experienced counsel to protect your interests from tax exposure. This is because, if the non-resident seller fails to obtain the Clearance Certificate, the CRA attaches the tax loss to the property and assesses the loss against the buyer. There are steps that must be taken by the purchaser and the purchaser’s lawyer to avoid exposure.
If you anticipate changing your residency, advice and planning are essential. As a cautionary tale, we recently advised in respect to a situation where Canadian left Canada many years ago and eventually changed national residency. Before they left, for convenience, they transferred property in Toronto into co-ownership with a family member. They did not seek legal, accounting or tax advice. Now they want to sell the property. They now potentially face serious consequences and tax exposure as a result of deemed dispositions on the original departure, deemed disposition on the intra-family transfer and taxable capital gains not protected by the primary residence exemption. They may have avoided some or all of those consequences with better planning.
Speak to us if you have concerns about a transaction in respect of a Canadian property involving a non-resident.
