For Non Canadian Sellers
Who is a Non Canadian Resident?
The term “resident” is not defined in the Income Tax Act, however, the courts have held “residence” to be a “matter of the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living with its accessories in social relations, interest and conveniences at or in the place in question.” The courts have held that an individual is “ordinarily resident” in Canada for tax purposes if Canada is the place where the individual, in the settled routine of his or her life, regularly, normally or customarily lives. In making a determination of residence status, all of the relevant facts in each case must be considered, including residential ties with Canada and length of time, object, intention and continuity with respect to stays in Canada and abroad.
Non Canadian Resident Sales
The non Canadian resident is required to pay the appropriate amount of taxes on any gain.
The Seller must provide to the purchaser, on or before closing, a clearance certificate from Revenue Canada. The amount owing is deducted from the sale proceeds and sent directly to the federal government by the seller’s lawyer.
The clearance certificate may be applied when there is an unconditional contract of purchase and sale entered into by the seller. The wait for the clearance certificate is usually around 6-8 weeks.
Complications can arise if the certificate is not obtained prior to the closing date. In such a case, the purchaser is required to holdback from the sale proceeds a percentage of the selling price. This percentage is either 25% or 50%, depending on whether the property is non-depreciable property (a residence of the seller) or depreciable property (the property bas been rented). The transaction closes with the money remaining in a lawyer’s trust account until the certificate is obtained. Once the certificate is obtained, the taxes are paid from the holdback and the non Canadian seller receives any amount left over.
Please note that the holdback is based on the selling price, not the equity in the property. If there is financing on the property, the seller may need to pay this financing from other sources.
[box type=”shadow”]Please remember that the Income Tax Act frequently changes, and there are often new cases dealing with the issues set out above. While we try to keep out website as current as possible, please do not rely on the above without talking to your lawyers and accountants.[/box]