Tax process for non-resident sellers of Canadian property
As a non-resident seller of Canadian property there are tax requirements, which include both the filing of a request for a certificate of compliance (which must be filed with CRA within ten days of closing/completion date or there is a penalty of up to $2,500) and then you may need to file a Canadian tax return to report the sale.
The process is generally as follows:
Once an accepted offer has been received and subjects have been removed we can begin preparing the request for the certificate of compliance (by way of a form called a T2062). We like to file this early (in advance of the closing/completion date) when possible, as this will result in the certificates of compliance being received earlier.
Once the sale completes, the purchasers lawyer will likely request a hold back equal to 25% of the sale price of the property (or 50% if the property that has been used to earn income as a rental) – these funds will then be held in either your lawyers’ or the purchaser’s lawyers’ trust account. Holdbacks are done as if a non-resident seller was to not pay the taxes on the sale of their property, the purchaser of the property would be liable to pay the taxes, of up to 25% of the purchase price, therefore this practice is in place to protect the purchaser.
Once CRA has processed the T2062 form to request the certificate of compliance (which usually takes about 4 months from the date of submission), they will mail out a request for payment for the taxes owing, as determined by the T2062 form. This will be equal to your share of the gain on the property(your share of the sale price less your share of the original purchase price) X 25%. This amount owing will then be paid out of the lawyers trust account and remitted to CRA.
Once CRA receives the payment, they will immediately issue the certificates of compliance. Generally it takes a week for them to receive the cheque in the mail, and then about another week for us to receive the certificates in the mail from them.
Once we receive the copies of the certificates from CRA, we will issue the necessary copies to yourself, the buyer’s lawyer and your lawyer. At this time we usually also provide our invoice, which we will request be paid out of the funds being held in trust by your lawyer (as this is usually the most convenient method for non-residents to pay our fees). If that is approved by you, the lawyer will issue us a cheque from the trust account, and then the remaining funds will be issue to you.
Then, in the following January, we would be able to prepare the Canadian tax return related to the sale. The return is due April 30th, but as it generally takes CRA 6 months to process non-resident tax returns, we try to file as early as possible so that you can receive your refund sooner. Generally it is estimated that the refund will be roughly 50% of the taxes paid on the certificate of compliance (assuming standard selling costs).
If you would like to engage us to prepare the tax filings, we will require the following information:
A copy of the offer and any addendum, once subjects have been removed. Once the sale completes, we will also need copies of the sellers statement of adjustments from the lawyer.
A copy of the original purchase documents (usually called a purchasers statement of adjustments from the lawyer)
Confirmation as to whether or not the property was used to earn income as a rental
Your full legal names
Your mailing address and phone number
Your dates of birth
Your Canadian tax number, if would have one
If you do not have a Canadian tax number, we will need to file another form to request a number be issued to you – in such case we will require a notarized copy of your ID such as a passport or driver’s license to be mailed to our office to then be forwarded to CRA
The date you left Canada/became a non-resident, if you were once a resident of Canada (an estimate is fine)