Corporations and non-resident individuals owning Canadian property face extra legal hurdles before they can sell. Most importantly, Canadian tax legislation can hold those who purchase a property with unpaid taxes liable for them. Therefore, many buyers will withhold 25% of the sale price before you prove you’re in the clear. The amount can balloon to 50% for a non-resident selling rental property in Canada if it is depreciable. That means getting confirmation from the Canada Revenue Agency (CRA) that you’ve remitted all dues.
Notifying the CRA in 10 days
Within ten days after you close a sale, buyer or buyer’s attorney, or your attorney, or accountant must notify the CRA using form T2062. Hence, if there was depreciation or capital cost allowance, you submit the form T2062A to recapture the depreciation and capital cost allowance to the CRA. CRA will send a certificate of compliance to confirm that all tax liabilities are satisfied and funds to be released to the seller.
Since it can take the CRA 8-12 weeks to process, we recommend sending in your form after entering a binding contract. The form will require a Temporary/Individual Tax Number (TTN/ITN) from non-resident individuals. Corporations must add in the Business Number (B.N.).
Taxes on Property Sale
The CRA receives 25% tax on the gross capital gain. A tax return must filed to report the next capital which can include selling cost, closing cost, commission and other other cost to sell the property.
Steps in obtaining the T2062 Clearance
- Fill in the following information into form T2062:
- Date and price of sale
- Details about the property, such as when you bought it, its location, its cost, any income you received from it, and if there were any capital improvements
- Your Canadian social insurance or business number
- Personal information, including when you became a Canadian non-resident
- If you co-own the property with someone else, the CRA will also require their information on the form.
The CRA will ask you for source documentation as proof of authenticity of the information. Provide it to them.
- Next, their representative will call the vendor’s representative. Since the CRA will keep at it until they’re comfortable with the information, this usually happens multiple of times. Only then will they request payment from the vendor.
- Once you clear the dues, you get the clearance certificate. Send it to the buyer’s lawyer.
- You receive your holdback from the buyer’s representative. Usually, it is 25% of the net capital gains you earn through the sale. However, the amount can be half of the gains if the property you were selling is depreciated.
Canadian Tax Returns and Refunds
Often, the amount you owe is bigger than what you get as Non-Resident Capital Gains Tax Canada. Then the CRA may owe you some money. If you want any available refund to head your way, here’s what you should do. File your T1 returns for the year.
AKIF CPA can help you with tax non-compliance issues. Our skilled lawyers and accountancy experts are also experienced in cross-border matters. Also, we offer tailored tax solutions to all our clients. That’s because all cases are unique. So, contact us before the IRS contacts you!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Akif CPA will not be held liable for any problems that arise from the usage of the information provided on this page.