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 Chartered Accountant
Non-Residents Assistance

Assistance to Non-Residents
There are certain obligations imposed on non-residents by Canada Revenue Agency (CRA) with respect to the reporting of both rental income and the gains realized on the disposition of real property within Canada. Most often, a non-resident of Canada who owns real estate in Canada, is subject to Canadian withholding tax on any rental income as well as on the gain realized on disposition of Canadian real estate. Our services include assistance with the following:
 

Rental Income
A non-resident who owns Canadian rental property must have an agent in Canada who receives the rental income and remits the appropriate withholding tax. A non-resident owner of Canadian rental property is subject to a withholding tax on the gross rents which should be remitted by the Canadian agent of the owner. These withholding tax payments, however, can be reduced or even eliminated if the non-resident owner files a special form (NR6) which enables the withholding tax to be calculated on the estimated net rental income rather than on the gross rental income.

Gains From Disposals
There exists a compliance requirement on the disposition of Canadian real property owned by a non-resident. The non-resident vendor is required to inform the Canadian government of the sale within 10 days of the closing or they may face a penalty. Additionally, because the purchaser of the Canadian real estate property is also liable for any Canadian income taxes owed by the non-resident vendor, that purchaser is required to withhold 25%-50% of the gross proceeds of sale and remit them to the CRA on behalf of the non-resident owner. The non-resident owner can avoid this withholding by filing an election requesting a Compliance Certificate enabling the withholding tax to be limited to the tax on the actual gain which will be realized from the disposition. Due to the mechanics of the calculation on the withholding, a non-resident owner should receive a partial refund of the withheld Canadian tax when they file a Canadian income tax return for the year in which the disposal occurred. For significant Canadian rental activity, it is generally carried on through a Canadian corporation which would be subject to Canadian corporate income taxes on its net income. However, if the Canadian corporation is properly structured and financed, the income can be reduced by interest expense on financing as well as management fees which may be subject to lower withholding tax rates under international tax treaties.

Goods and Service Tax (GST)
GST is Canada's value-added tax at 6% and it applies to all sales of goods and services unless specifically exempted. This includes the purchase of a real estate property and the rental income earned by the property, except that used residential property, other than such property intended to be used for short-term rentals of less than 30 days, is exempt from GST. If the property is going to be subject to GST, because it is going to be used in a commercial activity (i.e., short-term rentals), the purchaser should register for GST prior to the acquisition. This way the registered purchaser becomes liable for the GST but he can also claim offsetting input tax credits so that the net remittance for GST on the purchase is nil, and any GST collected on short-term rents may be offset by any GST paid on taxable purchases to provide the rental accommodation. GST returns must be filed on a timely basis to remit any net tax owing or to claim any net refund. There are many complexities in the Excise Tax Act dealing with the GST. A non-resident registrant may need to post a security deposit, if the amounts of GST that he or she will collect in trust for the Canadian government will be significant. There are also special rebates which may be available to help recover a portion of the GST paid for the purchase of a Canadian real estate property.

Immigration to Canada
Once a person becomes a Canadian resident for tax purposes, that person will become subject to Canadian tax on that person's world income from the time Canadian residence is obtained. During the year of immigration, normal personal tax credits allowed are pro-rated based upon the portion of the calendar year during which the individual was living in Canada. Capital property owned at the time of immigration is usually deemed to have a cost for Canadian tax purposes equal to the fair market value of such property from the time that Canadian residency is obtained. The main exception to this rule is the fact that it does not apply to taxable Canadian property.

For non-residents with significant wealth and/or sources of income it is advisable to seek Canadian tax advice before immigrating to Canada in order to take the best steps to minimize the impact of Canadian taxation.

One commonly used planning technique for immigrants to Canada who have significant wealth, is the formation of an immigrant trust in a tax-haven jurisdiction. Properly structured, this will allow some investment income earned to be exempt from Canadian taxation.

Emigration From Canada
Once a person ceases to be a Canadian resident, that person will no longer be subject Canadian tax on that person's world income. Instead, after that time, that person will normally only be subject to Canadian tax on Canadian-source income. This will hold true even if that person maintains Canadian citizenship, since unlike the United States, Canada does not tax based upon citizenship. In the case of an individual, the taxation year of emigration is, in effect, divided into two parts: the part during which the individual was a Canadian resident; and the part during which the individual was a non-resident. It is only the worldwide income that is earned during the first part that is subject to Canadian tax. Income earned during the second part of that year will generally only be subject to Canadian tax if it is derived from Canadian sources. Throughout the year of emigration, normal personal tax credits allowed are pro-rated based upon the the calendar year during which the individual was resident in Canada. Capital property owned at the time of emigration is generally deemed to have been disposed of at fair market value. This deemed disposition will normally apply to all forms of property other than direct interests in Canadian real property. Emigrants may be allowed to post security, in lieu of payment of tax, in order to cover the tax liability resulting from such deemed disposition. For Canadian residents with significant wealth and/or sources of income it is advisable to seek Canadian tax advice prior to emigration from Canada in order to take steps to minimize the impact of Canadian taxation.