A Guide to Buying Property in Canada as a Non-Resident

A Guide to Buying Property in Canada as a Non-Resident

Canada’s diverse landscapes and vibrant cities make it an attractive destination for property investment. If you’re considering buying property in Canada as a non-resident, it’s crucial to understand the legal frameworks, taxes, and financial obligations involved. This guide provides essential information to navigate the process smoothly.​

Understanding Eligibility and Restrictions

As of January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act came into effect, prohibiting non-Canadians from purchasing residential property in Canada for a two-year period. This ban has been extended until January 1, 2027. However, certain exceptions apply, such as:​

• Temporary Residents: Individuals with valid work or study permits may be exempt if they intend to reside permanently in Canada.

• Development Purposes: Non-Canadians purchasing property for development may be exempt under specific conditions.​

It’s essential to consult the official guidelines or a legal expert to determine your eligibility.

Navigating Taxes and Additional Costs

Purchasing property in Canada as a non-resident involves understanding various taxes and fees:​

• Non-Resident Speculation Tax (NRST): In provinces like Ontario, non-residents are subject to an additional tax on residential property purchases. For instance, Ontario imposes a 25% NRST on properties in certain regions. 

• Goods and Services Tax (GST): Newly constructed properties are subject to GST, with potential rebates available under specific conditions.​

• Provincial and Municipal Taxes: Each province and municipality may levy additional taxes, such as land transfer taxes and annual property taxes.​

It’s advisable to consult with a tax professional to understand the full scope of tax obligations.​

Financing Your Property Purchase

Securing financing as a non-resident can be challenging:​

• Down Payment: Lenders typically require a higher down payment from non-residents, often around 35% of the property’s value.

• Mortgage Terms: Mortgage terms for non-residents may differ from those offered to residents, with potentially higher interest rates and shorter amortization periods.​

• Documentation: Be prepared to provide comprehensive documentation, including proof of income, credit history, and a valid Canadian bank account.

Engaging with Canadian financial institutions or mortgage brokers experienced in working with non-resident buyers can facilitate the financing process.​

Legal Considerations and Due Diligence

It’s imperative to conduct thorough due diligence:​

• Legal Representation: Hire a lawyer familiar with Canadian real estate law to guide you through the transaction.​

• Property Inspection: Always conduct a professional inspection to assess the property’s condition.​

• Title Search: Ensure the property has clear title, free from liens or disputes.​

• Compliance with Local Laws: Be aware of and comply with all local zoning laws, building codes, and regulations.​

Understanding Tax Obligations

Non-resident property owners must be aware of their tax obligations:​

• Rental Income Tax: If renting out the property, rental income is subject to Canadian taxation. Non-residents must file annual tax returns to report this income.

• Capital Gains Tax: Upon selling the property, non-residents are subject to capital gains tax. A portion of the sale proceeds may be withheld to cover this tax. It’s essential to obtain a clearance certificate to ensure the proper amount is withheld.

Consulting with tax professionals experienced in non-resident taxation is crucial to ensure compliance and optimize tax liabilities.​

Conclusion

Buying property in Canada as a non-resident requires careful planning and adherence to legal and financial regulations. By understanding the eligibility criteria, tax obligations, financing options, and legal considerations, you can make informed decisions and navigate the Canadian real estate market effectively. Always consult with professionals to ensure a smooth and compliant property purchase experience.