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Date: October 6, 2023
If you are selling your home, apartment, or any other asset, you are liable to Canadian withholding tax of Non-residents.
Canada has the right to tax the sale of your Canadian property under its own tax laws and income tax treaties with most other countries. Since you are not a Canadian resident, the Canada Revenue Agency (“CRA”) wants to make sure that they always have enough money (or Securities) from you to cover your taxes owing if you decide not to make the required tax returns. To do so, the CRA requires the purchaser to withhold 25% (or 50% in some cases) of the sale price. In most cases this will be held by the seller’s lawyer in a trust account. This is not the ultimate tax, though.
When requesting a “Certificate of Compliance,” the CRA will request a withholding tax payment of 25% of the NET capital gain instead of 25% of the sales price. This is not yet the final tax debt. By filing a Canadian T1 tax return reporting the net gain, you will be entitled to a credit for tax withheld by the CRA, as this return allows us to claim our cost of sales and pay tax at the Canadian marginal tax rate, which is usually less than 25% withholding tax. In fact, this process forces you to fulfill your tax obligations, or else you are donating a significant amount of money to the Canadian government.
Wales Accounting tax advisors can help non-resident sellers in completing the necessary documents and estimating the capital gain and tax payments. If you require assistance, contact us at 905-508-9262. It is always a good idea to consult a tax advisor prior to listing and selling your home.
What is the real estate sales process?
- The buyer is responsible to withhold 25% (or in some cases 50%) of the total purchase price, which this amount will be held in seller’s lawyer account,
- The seller must notify the CRA of the sale or proposed sale of the property by requesting a certificate of compliance and completing the appropriate form (T2062 or T2062A). These forms must be filed no later than 10 days after the actual sale is taking place. The late filing penalty is $25 per day, up to a maximum of $2,500, even if no taxes are owed.
- The CRA will require payment or an acceptable security to cover the resulting taxes owed and will issue a certificate of compliance. This process will be timely.
- After receiving a copy of the Compliance Certificate, the buyer (through the seller’s lawyer) will release the amounts withheld in Step 1 to the tax payer.
- After the finish of the schedule year, the non-resident must file a Canadian tax return to report the sale and receives any overpayment of the non-resident taxes if any.
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