Non Residents of Canada
Being considered a non resident of Canada is not related to whether or not a person is a Canadian citizen. Even a Canadian citizen will usually be treated as a non-resident if they live in Canada less than a total of 183 days a year OR if one has no residence in Canada and customarily lives outside of Canada. A person who is not a Canadian citizen and is not a landed immigrant can still be treated (for tax purposes) as a resident of Canada if such person lives in Canada for more than 183 days a year.
Please be aware that various other factors may be considered when analyzing whether a person is a resident or non resident, such as:
- whether at the time of closing a sale, the seller will continue to own/rent in Canada
- if the seller has a spouse or dependent in Canada
- whether there are continuing social and economic ties in Canada (i.e., memberships, employment)
- if the individual has Canadian documents like a driver’s license, medical insurance, bank accounts
- how often one is in Canada
Even a corporation incorporated in a foreign jurisdiction can be considered a resident in Canada if the central management and control of the company are located in Canada, and business and meetings of Directors takes place in Canada.
For a more detailed analysis of Canadian residency/non-residency, please visit www.cra.gc.ca or www.cra-arc.gc.ca/tx/nnrsdnt/ndvdls/nnrs-eng.html
- The legal fees and expenses (disbursements) are typicall the same whether a buyer is a resident or non-resident, UNLESS the purchase agreement was accepted AFTER April 20, 2017 for a property purchased in the Toronto area and any one of the buyers is a FOREIGN NATIONAL (not a Canadian Citizen or Permanent Resident of Canada).
- If a Foreign National is purchasing a property in the Toronto area after April 20, 2017, then they must pay an additional 15% tax based on the purchase price, in addition to the normal Land Transfer Taxes (The exception to this rule occurs when two buyers buy a principle residence jointly and are spouses or common law partners and only one buyer is a Foreign National.)
- Foreign corporate buyers must also pay additional 15% if not incorporated in Canada or such corporation, if incorporated in Canada is controlled by a FOREIGN NATIONAL or by a FOREIGN ENTITY.
NOTE: The added 15% Ontario Tax only applies if the property is located in or around Toronto, in the Greater Golden Horseshoe area. The Greater Golden Horseshoe is made up of the regions of Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.
If, within FOUR years of closing a purchase, a Foreign National becomes a Canadian Citizen or Permanent Resident, one can apply for a refund of the 15% if certain requirements are satisfied. Refunds are also available if a Foreign National buyer works legally in Ontario for 12 months after closing, or attends a qualified school in Ontario for 24 months after closing and the property purchased is a used as a principal residence.
- If a buyer does not work in Canada and does not have an established Canadian income, most mortgage lenders require a higher cash down payment, being typically 35% of the purchase price. Please see MORTGAGE FINANCING MATTERS for more information.
- When any person (resident or non-resident) buys in Ontario, there is a LAND TRANSFER TAX based on the price. TWO Land Transfer Taxes are payable if one buys within the boundaries of Toronto, running south of Steeles Avenue, which is the northern boundary of Toronto.
- However, if a buyer is a first time buyer being a Canadian Citizen or a Permanent Resident of Canada, never having owned an interest in a residential property anywhere in the world AND is at least 18 years of age AND will use the property as a principal residence within nine months of completing such purchase AND does not have a spouse who owned an interest in a residential property after the date of marriage, then deductions of up to $4,000.00 (for Ontario) and up to $4,475.00 (for Toronto Land Transfer Tax, if applicable) can be made by the lawyer upon closing the purchase.
- See LAND TRANSFER TAX REFUND: ONTARIO and LAND TRANSFER TAX: CITY OF TORONTO for more information.
- Mortgage lenders will not allow mortgage funds to be advance unless the lawyer for the buyer receives a binder for fire insruance from an Ontario insurance broker prior to closing.
- If a non-resident owns no other Ontario property, such insurance will be more difficult to obtain.
- It is HIGHLY recommended that a non-resident buyer obtain written confirmation by an Ontario insurance broker that fire insurance can and will be provided BEFORE committing to buying a property in Canada. See INSURANCE 3 TYPES for more information.
- Title insurance is automatically provided by our law offices to all buyers (resident or non-resident). The one-time cost for title insurance is included in our online quotations.
- Such insurance provides ownership protection for a buyer of residential real estate if title problems should ever be discovered, including any issues related to fraud or forgery.
- See TITLE INSURANCE for more information.
- In Canada, as of June 23, 2008, buyers and sellers are now required to show a current photo identification (at the time of signing) to the real estate sale person or broker, who is required to record information on a form called CLIENT INFORMATION RECORD
- See FINTRAC for more information
- In Ontario, Canada, as of July 1, 2010, there is a sales tax (based on the purchase price) being a total of 13% (prior 5% GST, goods and services tax, plus prior 8% PST, provincial sales tax). See HST for more information.
- NOTE::No such tax exists for any buyer (resident or non-resident) when buying RESALE residential property; such tax exists when buying new construction from a builder. If an offer to purchase from a builder was signed prior to June 19, 2009, only GST applies and NOT HST.
- NOTE: An Ontario lawyer should review any offer to purchase from a builder since qualifying for GST/PST rebates and issues related to whether or not such taxes are included in the price or are in addition to the price are important considerations. Offers to purchase from a builder (if a condominium) automatically (by Ontario Law) permit a 10 day period from when the offer is signed for a lawyer to review such an agreement. Non-condominium purchase offers should include a condition clause for a period of 10 days for a buyer’s lawyer to review the terms of such an agreement.
- Any buyer of residential real estate must contact their utility suppliers (PRIOR to the closing date) in order to provide personal billing information so that meters can be read on closing, with the seller being responsible for utilities prior to closing and the buyer being billed for utilities after closing.
- See UTILITIES for more information.
- Unlike other parts of the world, 99% of real estate is freehold (wholly owned by the buyer) as apposed to leasehold (rare in Ontario). Any Ontario lawyer can verify to you the type of property you are considering for a purchase.
- Please see TYPES OF OWNERSHIP for more information,
- When a buyer, resident or non-resident, completes a purchase of residential real estate in Ontario, the balance due on closing is subject to adjustments
- Please see CLOSING ADJUSTMENTS for more information
- When a buyer, resident or non-resident, completes a purchase of residential real estate in Ontario, the balance due on closing is subject to adjustments
- Please see CLOSING ADJUSTMENTS for more information
- If a buyer will not be in Ontario to complete the purchase at the time of closing, whether such person is a resident or non-resident, it is wise to sign a Power of Attorney in Ontario OR if possible, prior to leaving Ontario
- If a buyer will not be in Ontario prior to closing, or, if so, did not sign a Power of Attorney or was not able to pre-sign closing documents in Ontario prior to leaving, THEN there are TWO OPTIONS
- 1) Signing Documents Outside of Ontario
- The Ontario lawyer completing the closing can courier or email the closing documents to the buyer or buyer’s lawyer outside of Ontario for signing and return to the Ontario lawyer PRIOR to the closing date.
- If this is done, then the buyer must attend on a local lawyer, attorney-at-law or notary to witness signatures and verify photo identification as required by the Ontario lawyer.
- This is typically a more costly and time consuming process than the signing of closing documents by Power of Attorney
- 2) Appointing Another Person to Sign Documents on Their Behalf
- see POWER OF ATTORNEY for more information.
Please see INSTANT QUOTATION. The legal fees and expenses (disbursements) are typically the same whether a buyer is a resident or non-resident, except for the following:
- If closing documents have NOT being signed directly by the sellers (either in Ontario prior to leaving Ontario or outside of Ontario when documents are being sent by courier or email for signing) AND a Power of Attorney is being used to close, then our law office charges an additional $100.00 legal fee for processing a sale using Power of Attorney, PLUS an additional $76.55 fee to register the Power of Attorney in Ontario’s Land Registry Office. Preparation of the Power of Attorney Document is at NO cost.
- Our law offices typically charge an added legal fee of $250.00 to process a sale by a non-resident seller, it being understood that the client or the realtor will arrange for an accountant (who will charge a separate fee) for applying for a non-residency clearance certificate in which event usually 25% of the gross sale price will be held (typically by the seller’s lawyer, in trust) until the clearance certificate has been obtained.
- Such an application for the clearance certificate usually takes 60 to 90 days to process and MUST be submitted within 10 days of the closing to avoid penalties.
- Once the clearance certificate is obtained, direct payment of any taxes owed on any net profits of the sale are paid to the government of Canada with the remaining balance in trust being paid to the client, plus any accrued interest on such money held in the lawyer’s trust.
- In Canada, as of June 23, 2008, buyers and sellers are now required to show a current photo identification (at the time of signing) to the real estate sale person or broker, who is required to record information on a form called CLIENT INFORMATION RECORD
- See FINTRAC for more information
- To avoid a penalty for late filing, a non-resident owner who sells or gifts real estate must ensure that within 10 days of closing, an Application is made for a Non-resident Certificate of Compliance under s.116 of Canada’s Income Tax Act. It will take approximately 2 to 3 months for Canada Revenue Agency (CRA) to issue the Clearance Certificate. The application is user friendly; however, we recommend applying through an accountant, particularly when the property has been used as a rental.
- Pending receipt of the compliance certificate, there will be a 25% hold back of the non-resident’s GROSS sale price, typically by the solicitor acting for the non-resident seller. Be aware that a gift of real estate will typically be deemed to be sold at fair market value by Revenue Canada. IF the property was rented out during the non-resident’s ownership, the property becomes depreciable and thus a 50% hold back of the non-resident’s GROSS sale price wil be required.
- For example – if there are two sellers who own equal shares of the property and only one is a non-resident, only the non-resident’s share requires a holdback pending receipt of the Non-residency Tax Clearance Certificate and so only 25% of the non-resident’s share of the sale price will be held (or 50% if property had been used as a rental)
- Typically, we advise our clients to file the application as soon as a client decides to sell a property, even if property has not yet been listed for sale, using an estimated sale price. For example, if the seller anticipates the sale price to be $500,000.00, make an application using a lower amount ($480K-$490K) and when sold (after the actual sold price is known), simply amend the application. There is no requirement for an application to be submitted only after a property has been sold since it can be done earlier in order to avoid any need for a holdback of funds on closing a sale. Ideally one should apply for the clearance certificate PRIOR to offering the property for sale since the process for obtaining the Non-Resident Clearance Certificate can be 2 to 3 months and one should try to avoid a holdback of funds by the lawyer on the closing date by obtaining the Clearance Certificate PRIOR to the date of closing.
- NOTE: A buyer who receives ownership, or any person receiving ownership as a gift will be held responsible by Revenue Canada for tax payable by a Non-Resident owner who sells or transfers title by gift (based on fair market value at the time of gift transfer) IF the Non-Resident who transfers title fails to promptly report the transfer/sale to Revenue Canada. They must pay any taxes owing or moneys required toward taxes owing. A buyer or person receiving such gift must be reasonably satisfied at the time of transfer as to Canadian Residency of Owner and of, in fact, such owner transferring title is a Non-Resident of Canada (at the time of transfer, citizenship not being a relevant consideration) the buyer or receiver of such a gift must hold funds or be liable for tax liability of prior owner.
- Typically the seller (whether resident or non-resident) must pay off any mortgage or secured line of credit registered on the property in order to provide a buyer on closing with a clear title.
- There is NO penalty for early mortgage discharge (prior to mortgage maturity) if a mortgage is open for prepayment at any time. However, if the mortgage is not open, a penalty of the greater of 3 months interest or interest rate differential will likely be payable. Consult your mortgage lender on such matters PRIOR to selling.
- See Utilities. Any seller of residential real estate must contact any utility suppliers (PRIOR to closing) in order to direct meters to be read on closing with the seller being responsible for utilities prior to closing and buyer being billed for utilities after closing.
- If a rental furnace or a rental hot water tank is to be assumed by a buyer on closing, provide details to lawyer for seller, well before closing so that documentation can be completed to enable buyer to complete rental assignment on closing.
- If a seller will not be in Ontario to complete the sale (at the time of closing) whether such person is a resident or non-resident, it is wise to sign a Power of Attorney in Ontario or if possible, prior to leaving Ontario (if the seller will be in Ontario at any time prior to completing the sale).
- If a seller will not be in Ontario prior to closing or, if so, did not sign a Power of Attorney (authorizing another person to sign closing documents on behalf of a seller) or was not able to pre-sign closing documents in Ontario prior to leaving, THEN there are 2 options:
a) Signing documents outside of Ontario
- The Ontario lawyer completing the closing can courier or email the closing documents to the seller or seller’s lawyer outside of Ontario for signing and return to the Ontario lawyer PRIOR to the closing date. If this is done, then the seller must attend on a local lawyer, attorney-at-law or notary to witness signatures and verify photo identification as required by the Ontario lawyer, being typically a more costly and time consuming process than the signing of closing documents by Power of Attorney.
b) Appointing another person to sign closing documents on behalf of the seller