What Non-Residents Should Know about Selling Canadian Real Estate: Part 2

Posted on: October 16th, 2012 by Real Estate Accountants 5 Comments

In Part 1 of this article, we discussed non-residents who own Canadian real estate. In Part 2, we’re going to focus on when non-residents sell Canadian real estate.

What are the additional tax issues when the non-resident disposes of a Canadian real estate rental property?
Non-residents must apply for a clearance certificate from the Canadian Revenue Agency by filing Form T2062, and Form T2062A. (These forms generally are prepared by the non-resident’s Canadian accountant.)

Withholding taxes & clearance certificates
The T2062 and T2062A forms calculate tax on the capital gain (Form T2062) and on any recapture (Form T2062A). They are submitted to the CRA for approval. Without these forms the purchaser of the property would be required to withhold 25% tax on the gross sale proceeds (50% in the case of depreciable property). The forms require that various pieces of information be attached to them as part of the submission to the CRA. These would include the Purchase/Sales Agreement relating to the original purchase and to the current sale, copies of previously filed Canadian tax returns (Section 216 Returns), etc. just to mention a few. If the CRA then issues a clearance certificate which is provided to the purchaser, tax is withheld on the gain and on any recapture instead of on the gross selling price.

More paperwork…
Any net rental income generated in the year of disposal is reported on a Section 216 return and the disposal of the rental property is reported on a different non-resident return. Any withholding tax paid, as calculated on the T2062A form, is credited on the Section 216 Return and any withholding tax paid, as calculated on the T2062 form, is credited on the non-resident return, to be offset against any tax otherwise payable on the respective returns.

Not following above-mentioned procedures can mean significant adverse tax consequences depending on the situation.

The above-mentioned is a general description to give you an idea of what is involved. We have various non-residents for which we prepare their tax returns or for whom we apply for clearance certificates, so are happy to answer your questions.

Forms to Know
T2062 – Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property
T2062A – Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Canadian Resource or Timber Resource Property, Canadian Real Property (Other Than Capital Property) or Depreciable Taxable Canadian Property

Please contact George Dube at gdube@bdo.ca if you have questions on this article.

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5 Responses

  1. Carrie Bennett says:

    I am a non resident of Canada. I bought a house in Calagary in 2001. I was a resident at this time and lived in this house for 2 years. I then became a non resident for the next two years. In 2005 I became a resident of Canada again and lived in my house for three years. In 2007 I moved back overseas and became a non resident once again. I have been renting my house as a non resident since 2007. I want to sell the house now. Would I pay capital gains based on the price of the house when I became a non resident in 2007 or do I pay based on the purchase price in 2001?

    Thanks for you help.

    Carrie Bennett

  2. Marsha Galloway says:

    Where in Canada are you? How much do you charge to take care of these things. We are US Residents and want to sell the house my husband grew up in. It has been in our name since 1996. What do we need to do? The house is in Alberta.

    • Dube & Cuttini says:

      Hi Marsha!

      We can definitely help. We are in Ontario but work with clients across Canada. I’ll send you a direct email to give you more information on how we can can help.

  3. Carl says:

    What happens if you did not know anything about this and file a year late?

    • Real Estate Accountants says:

      We frequently help people who were unaware of the rules or for whatever reason simply didn’t get the information filed on time. Catching up as soon as practical is almost always the best advice although in some instances we may slightly alter our plan in how and what we file. Depending on the situation, there can be some interest and penalties or requirements to withhold taxes at gross vs net figures, but these only increase over time and as more years are added. At times the CRA is a little lenient, but better to be safe than sorry.

      Warm regards…
      George E. Dube, CPA, CA