Non-Residents of Canada are treated separately from permanent residents and Canadian citizens at the time of real estate transactions. Below are persons who are considered as non-residents of Canada:
- Canadian citizen or permanent resident who was living in Canada for less than 183 calendar days in the year or resides outside Canada customarily
- Foreign nationals living outside Canada or lives outside Canada for more than 183 calendar days in a year
PURCHASE OF REAL ESTATE
Legal Fees and Purchase expenses
Land transfer tax and an additional 15% tax is payable for properties purchased in and around Toronto where the purchase agreement was accepted after April 20, 2017, by a foreign national. Click here to know more.
Mortgage Rules
Mortgage lenders require higher down payments in cash of the buyer does not have any established Canadian income or does not work in Canada. Typically, the cash down payments required is in the range of 35%.
Land Transfer Tax – First Time Buyers Deductions
At the time of closing of a purchase transaction or acquire a beneficial interest in land, the buyer needs to pay a land transfer tax to the province of Ontario. Unless exempt under the Act, the Land Transfer tax is payable on all unregistered dispositions of beneficial interests in land including every conveyance of land presented for registration. Click here to know more.
Fire Insurance of Property
House insurance has to be arranged by the purchaser with the mortgage lender named as a loss payee in the policy. The house insurance policy should be of the full guaranteed replacement value of the property just before the closing. Click here to know more.
Title Insurance
Title refers to the legal ownership of any property. Title insurance safeguards residential property owners and their mortgage lenders from any losses arising from the property’s ownership or title. Click here to know more.
FINTRAC Rules
As of June 23, 2008, Client Information Record Form needs to be updated by the real estate broker or salesperson with the latest photo identification of sellers and buyers.
Harmonized Sales Tax (HST)
As of July 1, 2010, the Harmonized sales tax is payable on the total purchase price for all sales. This tax amount includes provincial sales tax and goods and services tax. HST is not payable on the residential resale property but only on purchasing new construction from the builder. Click here to know more.
Utilities
For the new residential property purchased, suitable utility departments need to be intimated so that they can analyze the meters on closing. Doing this is essential to ensure the services are not interrupted and billing to the purchaser is done only after the closing date. Click here to know more.
Types of Ownership
In Ontario, 99% of all real estate is freehold which means that the buyer completely owns it. Getting a trusted Real Estate Lawyer to review the ownership of the purchased property is recommended. Click here to know more.
Closing Adjustments
In a sale and purchase agreement, there is a clause stating that the purchase price outstanding on the closing date will be paid by certified cheque subject to the usual adjustments. Click here to know more.
Power of Attorney
Power of Attorney means giving a person the right to act on your behalf. Then this other person has the right to sign property documents on your behalf.
If the buyer is going to be unavailable at the time of closing the property purchase, it is advisable to sign a power of attorney before he/she leaves Ontario. In case no power of attorney was signed, below options are available:
- Getting signatures outside of OntarioThe buyer’s lawyer can email or courier the required closing documents to be signed by the buyer. It must be noted that the documents should be returned to the lawyer within the closing date. The buyer will also need the validation of his signature from a local lawyer or notary public as required by the Ontario Lawyer. Giving a power of attorney can be a simpler and cost-effective process.
- Giving Power of AttorneyAnother person can be appointed by the buyers to represent them and sign all the required closing documents on their behalf.
SELLING RESIDENTIAL REAL ESTATE
Legal Fees and Selling Expenses
All the selling expenses and legal fees are the same for residents and non-residents with the below exclusions:
- Additional legal fees are charged for all cases where power of attorney is used to process the closing transaction, and the buyer is not present
- Fees for registering a power of attorney in land registry office of Ontario
- Legal fees for processing sale transaction of a non-resident seller who provides a non-residency clearance certificate within 10 days of closing of the transaction
FINTRAC Requirements
As of June 23, 2008, Client Information Record Form needs to be updated by the real estate broker or salesperson with the latest photo identification of sellers and buyers.
Non-Resident Clearance Certificate
As per Income Tax Act of Canada, all non-resident seller needs to apply for a Non-resident Certificate of Compliance to the Canada Revenue Agency. Late payment penalties can be avoided if the application is done within 10 days of closing of the property sale transaction.
It is advisable to apply through accountants if any rental property is being sold. As per Section 116 of the Canadian Income Tax Act, withholding tax has to be paid.
Before the funds exit Canada, the clearance certificate needs to be obtained by the non-resident. The clearance certificate mentions the tax payable to the CRA. It is very essential to obtain the certificate as in its absence, the purchaser will have to take on the responsibility to remit, either one of the 50% of the depreciable property purchase price or 25% of other capital property purchase price to the CRA.
Ideally, the clearance certificate should be obtained before the completion date. Once the subjects are waived off and the sale is binding, the certificate can be applied. The purchaser of the property will need to withhold a portion of the sale proceeds if the clearance certificate is not issued by the completion date. The amount of the holdback will be either of the one, as stated below:
- 25% of the purchase price for capital property (which was occupied by family members for personal use and was not used for income generation or rental property);
- 25% of the land value purchase price plus 50% of the building value purchase price for properties which are not capital property (which are income generating or rental properties or depreciable property, irrespective of the fact whether the seller claimed depreciation or not
The purchaser’s lawyer has the responsibility to do the withholding and remit the amount to the CRA on behalf of the non-resident. The holdback is mandatory and is a percentage between 25-50% of the total sale price of the property.
Harmonized Sales Tax (HST)
All residential real estate sellers need to pay a Harmonized Sales Tax of 13% on legal costs and real estate commissions. This is applicable for all sellers, whether resident or non-resident.
Mortgage Penalties Payable
The seller needs to provide the buyer with the property having a clear title. Property being sold can have a clear title once the seller (both resident and non-resident) pays off all lines of credit or mortgage registered on the property. Click here to know more.
How We Can Help
At Nanda & Associate Lawyers, our experienced Real Estate lawyers understand your specific circumstances and provide tailored and customized solutions for each of them.
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