Thinking about purchasing a home in Vancouver? Buying a property in a different country can be an intimidating process… different laws… different ways of doing business… different processes.
At Best Mortgages Vancouver we have helped many non-residents of Canada through the process of buying a property in Canada and we can help you to! To arrange to have one of our mortgage specialist contact you click here, or call 604-961-2400.
Buying Property in Canada
The bottom line is that buying real estate in Canada is very easy. From a residency point of view, if you plan to stay in Canada for 6 months or less each year, the government considers you a non-resident, which means that you can still open a bank account and buy property, etc. If you plan to live in Canada for more than 6 months per year, you must apply for immigrant status.
In B.C. there are no restrictions on non-residents owing property. When buying a house in Canada, an offer must be made in writing so that all aspects of the transaction are clearly outlined within the offer including any condition you may want to insert allowing you some time to arrange your financing, have the property inspected or in the case of a condominium a chance to review the condominium documents. Once your offer is complete it will be presented to the seller and negotiations are made. This may include changes in price, completion date or any other terms. The changes are initialed by the seller and returned to you (the buyer) for your initials. The resulting Agreement of Purchase and Sale will state the purchase price and the deposit. The deposit which is usually between 5 and 10% of the purchase price is placed in your realtors trust account and is credited towards the purchase price once the offer has been accepted by both the seller and the buyer and the transaction is complete.
Most buyers in Canada will use the services of a real estate agent to assist them with the purchase of their property. In B.C. you can have a realtor who is looking out for you’re your interests and there are no fees for this service. The commission is paid by the seller of the property and is divided between the seller’s agent and the buyer’s agent . A purchaser can buy property using any realtor, regardless of whether that realtor originally listed the property. There are usually 2 realtors involved in a sale – the seller’s agent and the buyer’s agent. Some agents can also be dual agents but must declare this to buyers and sellers alike. If you are not already working with a realtor we would be happy to provide you with a referral to a realtor who is familiar with the area in which you are looking to purchase a property.
Financing your purchase
Foreign banks do not lend money if the security for the loan is a mortgage secured by a property located in Canada, so any mortgage financing would have to be raised from a lender in Canada.
Financing is available for up to 65% of the purchase price of the property and some lenders will offer their best discounted interest rates to non-resident purchasers.
Mortgages in Canada generally have a twenty-five year amortization period and most institutions will guarantee an interest rate for terms ranging from one to ten years. The shorter the term, the lower the interest rate
It is possible to arrange financing with less than the 35% down payment however these lenders charge a higher rate of interest which can be from 1 to 3% higher than the discounted rates.
Typically lenders will require the following documentation from non-resident client:
- Bankers reference lender from your current financial institution
- Confirmation via a three month history of bank statements / brokerage statements that show the 35% down payment is from non-borrowed sources
- A personal net worth statement
- A completed application that we will assist you with
- copy of 2 pieces of picture ID
- and real estate appraisal
- a Canadian bank account from which to withdraw the mortgage payments. There is no problem with a non-resident having a Canadian bank account but they must be opened in person.
In addition to the 35% down payment the lender will want to know that the buyer has approximately 1.5% of the purchase price available to cover the costs of closing the transaction.
The mortgage approval may take approximately 24-48 hours after application and documentation has been submitted to the lender.
Tax Implications for a Non-resident Purchasing property in Canada
The issues that arise from a non-resident purchase are not really from the purchase of the property, but rather from holding the property over the years. There are no restrictions for a non-resident purchase, nor are there any income tax implications or extra fees payable.
Tax issues may arise on the holding of property by non-residents. Non-residents of Canada are subject to tax on various kinds of income paid to them, including rental income and capital gains on the sale of a property.
In Canada we have a graduated tax system, which means that as your income reaches a certain level the rate at which you pay tax increases for the additional dollars earned. There are some strategies that can help to minimize your tax which your Best Mortgages Vancouver mortgage specialist will be happy to share with you.
Many countries, such as the U.S., have tax treaties with Canada that prevent you from being taxed in both Canada and your home country. It is advisable to contact a tax accountant in your country for more information.
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 our website as current as possible, please do not rely on the above without talking to one of our lawyers. Should you require a referral to an accountant, we would be more than happy to provide such a referral.
Who is a Non-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, interests 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.
If you are a non-resident of Canada purchasing Canadian revenue producing properties, you will be required to pay tax in Canada on this income. Specifically, a 25 percent non-resident tax must be paid on the gross rent a tenant pays; however, when you use a professional property manager, you are afforded some valuable options:
The property manager will, by law, withhold 25 percent of the gross rental revenue at source to be remitted to the Canadian Revenue Agency. Then on or before March 31 of the following year, the property manager issues an NR4 form and you then have the right to file a Canadian Tax Return. The tax return is due June 30 and enables you to claim expenses against that income and potentially request a refund.
You may elect to sign and submit an NR6 form in conjunction with the property manager before December 31 of each year; and once accepted the amount of non-resident tax withheld decreases to 25 percent of the gross rental revenue less any allowable expenses.
- By signing an NR6 form, you are undertaking to file an annual Canadian Tax Return and a T776 Statement of Real Estate Rentals form.
- For the first year of ownership, the property manager is required to withhold 25 percent of the gross rental revenue until such time as the NR6 form can be filed with the Canadian Revenue Service at the end of the year.
- The tax year corresponds to the calendar year for individuals, while the tax year for corporations, estates and trusts is the fiscal yearend.
- Both of the above options require an NR4 Summary and NR4 Supplementary to be filed by the property manager on or before March 31, even if no tax was required to be withheld.
While there are no issues when a non-resident acquires property, this is certainly not the case when a non-resident disposes of property.
In general, non-residents of Canada are subject to Canadian tax on capital gains from the disposition of “taxable Canadian property”. As is the case with Canadian residents only 50% of capital gains are taxable (“taxable capital gains”) and this amount is included in income and taxable under Part I of the Act. Canada has a graduated tax system, which means that as your income reaches a certain level the rate at which you pay tax increases for the additional dollars earned.
The Income Tax Act of Canada provides that whenever a non-resident disposes of property, the non-resident is required to pay the appropriate amount of taxes on any gain. In order to satisfy the purchaser that the appropriate amount of taxes are being paid, the vendor must provide to the purchaser, on or before closing, a clearance certificate from Revenue Canada. This certificate is issued by the federal government and certifies that a certain amount of money is payable for the taxes. The amount owing is deducted from the sale proceeds and sent directly to the federal government by the vendor’s lawyer.
The clearance certificate is issued pursuant to section 116 of the Income Tax Act and is usually required on the closing date. It may be applied for in advance of the closing by the vendor, but not until there has been a contract of purchase and sale entered into by the vendor, with all subjects being removed. The wait for the clearance certificate is usually around 6-8 weeks, so in a perfect world, there would be a 6-8 week lead-time between when the subjects are removed and the completion date.
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 vendor) or depreciable property (the property has 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 vendor 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 vendor may need to pay this financing from other sources.
Additional Costs and Fees when Buying a Property
The following represents many of the additional costs and fees incorporated when buying property in B.C.
Appraisal Fee: Between $300 and $450, depending on your home’s location.
Property transfer tax: Payable when an application is made to register a change of title and based on the property’s fair-market value:
- if the fair-market value is $200,000 or less, the tax is 1% of fair-market value
- if the fair-market value is greater than $200,000 the tax is 1% of the value up to $200,000 and 2% on the fair-market value over $200,000
Legal fees: These include your lawyer’s fees plus miscellaneous costs to transfer the property. These vary according to the legal firm used.
Survey certificate: Required to ensure the house is situated on the lot within legal limits. You may ask the seller to provide this as a condition of your offer.
Inspection fee: An optional but advisable step to take. Have an independent professional inspect your house and make a satisfactory inspection a condition of your offer. The cost will vary according to the home and inspector. Expect to pay $150 to $350 for a $300,000 home.
Tax: New homes are subject to 7% GST. You need to know who pays the GST, yourself or the builder. Check this by reviewing the offer to purchase—you pay if the offer to purchase says ‘plus GST’ and the builder pays if it says ‘GST included.’
Prepaid taxes or utility bills: If these costs are prepaid, you must reimburse the seller on a pro-rated basis.