If you are a non-resident investing in the Canadian real estate market or just filing nonresident tax returns, here are the best tax tips to help you save on taxes and avoid trouble from the CFA. Disclaimer: The information provided on this page is intended to provide general information. This information does not take into account your personal situation and is not intended to be used without the advice of accounting and financial professionals.
You can also leverage the information if you are looking to get details on Canadian residents for tax purposes.
Sell real estate in Canada
Canadian real estate looks very unattractive and prohibitively expensive. However, the federal tax of 25% of the gross sales price can be reduced to 25% of the capital gain realized on the sale of real estate in Canada. In order for the reduced tax rate to apply, the seller must first apply for a Certificate of Authorization, also known as Form T2062. It usually takes 4 to 6 months to issue a CRA Authorization Certificate. It is released only if the tax payment is made by a non-resident seller applying for a certificate. This presents a practical problem as the seller may not have sufficient funds to pay the credit rating agency. This helps in lowering the nonresident tax.
Reduce tax paid by submitting NR6
NR6 is an optional deposit you can consider to help reduce the non resident tax you pay to the CRA. NR6 shows the estimated gross rental income and expenses expected during the year. If approved by the CRA, you can pay non-resident tax at 25% on the net amount of rental income instead of the gross amount.
For example, suppose the gross rent collected for the year is $10,000 and the expenses incurred are $6,000, so the profit will be $4,000. If NR6 were approved, the fee would be $1,000 instead of $2,500. Make sure you submit your NR6 and get it approved by the CRA before your first rent payment is due. Please note that in order to qualify for NR6, you must appoint a resident agent in Canada, who can be an estate manager or a family member. The agent should act on your behalf and make monthly tax payments.
Consider maximizing your repayments by taking advantage of depreciation
To maximize repayments, you can depreciate the buildable portion of your rental property. The benefit is that it helps reduce taxable rental income. In the first years of the tenancy, the depreciation claimed may be equal to the net rental income and therefore a refund of the amount of tax paid to the CRA for the year can be obtained. Keep this in mind when filing non-resident tax returns. This might be different for Canadian residents for tax purposes.
Get a refund of the tax sent by filing a declaration under Section 216
Once you’ve paid 25% tax on your gross rental income, consider filing a Section 216 non-resident tax return to get a refund of the tax paid for that year. A Section 216 statement takes into account the gross income and expenses incurred for the year and allows you to tax your net rental income. The refund is calculated as the difference between the total tax due and the non-resident tax already paid for the year.
Keep a record of all your expenses
You can claim any expenses incurred to achieve this rental income. This would help you reduce your net rental income and thus increase your repayment. You should also keep vouchers for any capital expenditure, such as replacing the roof, as this will help increase the cost of the depreciable rental property.
Frequently Asked Questions
What if I’m thinking of leaving Canada to work, live or retire overseas?
If so, you will need to become a non-resident. This means you must sever all your primary and secondary ties to Canada.
When are non-Canadian residents taxed?
Non-Canadian residents for tax purposes are liable to pay Canadian taxes if:
(1) They were used in Canada
(2) Did business in Canada
(3) Canadian taxation suspended ownership
If any of these three situations apply, you should consult an accountant Canadian tax for non-residents expert who can prepare the returns for you.
What if I am a non-resident who is employed?
If you earned it in Canada, you have to pay Canadian tax for non-residents. Canadian earned income is subject to progressive taxation, where the tax rate increases with employment the income increases.
what if I am a non-resident of real estate?
If you own Canadian real estate, you are subject to Canadian tax for non-residents on gains made on the disposal/sale of that real estate.
what is my tax liability as a non-resident?
As a non-resident who has rental income from Canadian property, the CRA is required to pay a withholding tax of 25% of the gross rental income. This must be paid to the CRA by the 15th day of the month following the month in which the rental income was paid. File your non-resident tax returns now.
A non-resident must file a Canadian tax return at the end of the year to report the gains and incomes made until the tax year ends. CRA taxes already paid will be credited to the tax return filed. A non-resident of Canada will usually receive a tax refund due to these personal tax credits are granted. Canadian residents for tax purposes can save a lot if they have good know-how.