Taxes and real estate investment in Canada
Wednesday Mar 25th, 2020
The best part of the Canadian real estate is that you don’t have to be a citizen of the country to invest. Even non residents of the country can own a property here but they have to bear in mind to file the tax returns with the Revenue Agency of Canada (CRA).
In this article we will give you a brief view into the taxes that you have to bear when you buy a property in Canada. Knowing how your taxes apply will help you make the best out of your investment in real estate in Canada.
Taxes when buying property
Property taxes are the first that you need to know. There is a transfer tax to be paid which varies from province to province and is normally around 1% on the first $200k and around 2% on the rest. If you are a first time buyer, you can enjoy certain exceptions. There is also a GST (Goods and Services Tax) that is applied on any new purchase of property. The GST is not applicable for resale. And in case of new homes, there is a possible rebate of the partial amount you can avail.
Apart from this, there are also property taxes levied by the municipality which will be based on the current assessed property value in the market. This will be inclusive of other taxes like school tax.
Taxes on rentals
If you are renting out your property in Canada, then you would be required to pay about 25% of the gross income from rent as income tax. If you are not a resident, then you can choose to pay this 25% from the net income by simply filling up an NR6 form. Depending on whether you are the sole owner or a co-owner, whether the property is used for rental or business income, the tax income will be treated differently.
In case of net losses, you can claim the taxes paid before as well. While calculating your rental income you can reduce both the capital and operating expenses.
Taxes on selling
If you own a property in Canada, depending on whether you are a resident or not, there will be taxes applicable. If you are a Canadian resident, then there will be no taxes on the capital gains for the residence you inhabit. However if you are not a resident, then 50% of the sale proceeds is deducted as withholding tax. A clearance certificate is provided by CRA for the seller to confirm that there are no unpaid taxes.
When investing in a real estate in Canada, you would actually end up benefiting more as the laws are very much in your favor. Given that there is no need for a citizenship and the fact that the interest expenses and the taxes on property can be considered for tax deductibles, you stand to gain more. However you have to be very clear on the implication of taxes in every stage of your investment, be it owning, renting or selling a property in Canada.