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Non Residents Purchasing Real Estate in Canada - Part I

02/06/2009


What are the GST implications if you are a non resident and purchase a rental property in Canada? Are you a non resident thinking of investing in Real Estate in Canada? There are various tax implications to owning real estate in Canada.

Income Tax Issues
If there is income being earned from the property a tax return will be required to be filed each year. This tax return is known as a Section 216 Rental Return.

If you are receiving income, your tenant is required to remit withholding tax on the rent to the Government, generally the withholding tax is 25% on most types of rental income. The withholding tax is then considered a prepaid tax, and the non resident uses this amount as a credit on their Section 216 Rental Return. The withholding tax is often all or partially refunded once the expenses are claimed against the rental income.

However there is an opportunity to send in 25% of the net income from the rental property rather than 25% of the gross income if you have an agent in Canada that is willing to complete an NR6 form for you. This form basically states that the agent will vouch for you, that you (the non resident), will file a tax return each year and the agent will ensure that 25% of the net income is sent in each month. Often there is a loss on these rental properties at the beginning, so with an approved NR6 on file there would not need to be any withholding tax sent in.

Goods and Services Tax (GST) Issues
Should you register for GST? If you do, what does it mean?

You are able to register for GST if you will be using your property for short term rentals (less than 30 days at a time) If you are registered for GST you will need to collect GST on your rental income and you will be able to claim back the GST paid on your expenses, including the purchase of your property.

If you are an individual registered for GST you must be using the property more than 50% of the time for short term rentals to be able to claim back any of the GST on your expenses.

This is a very complicated area of the GST legislation, and consultation before you purchase a property can save thousands of dollars. Please don’t hesitate to contact your local MNP Tax Specialist.