WHO IS A NON-RESIDENT 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 living in Canada less than a total of 183 days in the year OR if one has no residence in Canada and customarily lives outside Canada.
Any person who is not a Canadian citizen will be considered a non-resident of Canada if normally one lives outside Canada or if one lives outside Canada more than 183 days in a year. 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 more than 183 days a year.
For a more detailed analysis of residency/non-residency in a year, see www.cra.gc.ca or www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html
A) IF A NON-RESIDENT BUYS RESIDENTIAL REAL ESTATE IN ONTARIO, CANADA
1) Legal Fees and Expenses for Purchase
See INSTANT QUOTATION. The legal fees and expenses (disbursements) are typically the same whether a buyer is a resident or non-resident.
2) Getting a Mortgage
If a buyer does not work in Canada and does not have established Canadian income, most mortgage lenders require a higher cash down payment, being typically 35% of price. See MORTGAGE FINANCING MATTERS.
3) Non-Resident First Time Buyers Deductions for Land Transfer Tax
When any person (resident or non-resident) buys in Ontario, Canada, there is a LAND TRANSFER TAX based on the price. Two such land transfer taxes are payable if one buys within the boundaries of Toronto (see LAND TRANSFER TAX: CITY OF TORONTO) running south of Steeles Avenue which is the northern boundary of Toronto.
However, if a buyer is a first time buyer, 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 $2,000.00 (for Ontario) and up to $3,725.00 (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.
4) Fire Insurance on Property Bought
Mortgage lenders will not allow mortgage funds to be advanced unless the lawyer for the buyer receives a binder for fire insurance (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 and before committing to buying a property in Ontario, a buyer must get written confirmation by an Ontario insurance broker that fire insurance can and will be provided for any intended purchase. See INSURANCE: 3 TYPES.
5) Title Insurance
See TITLE INSURANCE which is automatically provided by our law offices to all buyers (resident or non-resident). The one-time cost for such title insurance is included in our INSTANT QUOTATION.
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 and many other matters. See TITLE INSURANCE or EXISTING OWNER TITLE INSURANCE.
6) FINTRAC Requirements
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 salesperson or broker who is now required to record information on a form called CLIENT INFORMATION RECORD. See FINTRAC.
7) HST (Harmonized Sales Tax)
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.
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.
See Utilities. Any buyer of residential real estate must contact any utility suppliers (PRIOR to closing) 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 buyer being billed for utilities after closing.
9) Types of Ownership
Unlike other parts of the world, 99% of real estate in Ontario is freehold (wholly owned by the buyer) as opposed to leasehold (rare in Ontario). Any Ontario lawyer can verify to you what type of property you are considering for a purchase.
For information on the various ways to set up ownership of Ontario residential real estate, see HOW TO TAKE TITLE ON A PURCHASE.
10) Closing Adjustments
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. See CLOSING ADJUSTMENTS.
11) Power of Attorney: If Buyer will not be in Ontario, Canada for Closing
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 the buyer will be in Ontario at any time prior to completing the purchase).
If a buyer 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 buyer) 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 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, 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 buyer
See FREE POWER OF ATTORNEY.
B) IF A NON-RESIDENT SELLS RESIDENTIAL REAL ESTATE IN ONTARIO
1) Legal Fees and Expenses for Selling
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:
a) If closing documents have not been signed directly by the sellers (either in Ontario prior to leaving Ontario or outside of Ontario when documents are being sent by courier or by email for signing with return of original signed documents to Ontario’s lawyer PRIOR to closing) AND a Power of Attorney is being used to close (where another authorized person signs on behalf of seller to close), then our law office charges an added $100.00 legal fee for processing a sale using a Power of Attorney plus there is an added charge of $71.30 to register such power of attorney in Ontario’s land registry office. Preparation of the Power of Attorney document is at NO cost.
b) 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 of the client 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 would be held (typically by the seller’s lawyer in trust) until the government non-residency clearance certificate has been obtained by the accountant who has filed the appropriate application. Such an application usually takes 60 to 90 days to process and MUST be submitted within 10 days of closing in order to avoid penalties. Once the clearance certificate is obtained, direct payment of any taxes owed on any net profits on 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 trust by the lawyer.
2) FINTRAC Requirements
In Canada (as of June 23, 2008), sellers and buyers are now required to show a current photo identification (at the time of signing) to the real estate salesperson or broker who is now required to record information on a form called CLIENT INFORMATION RECORD. See FINTRAC.
3) Non-Resident Clearance Certificate by CRA (Canada Revenue Agency) Required When Selling Real Estate in Canada
To avoid a penalty for late filing, a non-resident seller 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. 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.
4) HST (Harmonized Sales Tax)
Whether resident or non-resident, sellers of residential real estate pay (in Ontario) 13% sales tax (5% GST, goods and services tax + 8% PST, provincial sales tax) on lawyer’s legal costs as well as on real estate commissions.
5) Penalties Payable to a Mortgage Lender When Discharging a Mortgage
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.
6) Utilities or Rental Furnace / Hot Water Tank
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.
7) Power of Attorney: If Not in Ontario for 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
See FREE POWER OF ATTORNEY.