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.
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 firstname.lastname@example.org if you have questions on this article.Tags: foreign reporting, non-residents, withholding tax