Ridout Barron


Beware of capital gains tax when buying a non-resident’s property

Buying a house is very expensive. Paying capital gains tax to the Canada Revenue Agency (CRA) is the last thing a purchaser wants to do. But this happens when purchasers buy property that is owned by a non-resident of Canada without working with a lawyer experienced in these types of transactions.

Under Canadian tax law, a non-resident who sells property they own here still pays capital gains tax on any gain they make from the sale.

How the Income Tax Act deals with non-resident capital gains tax

Many non-residents don’t pay the capital gains tax. Collecting money from someone who lives outside Canada is almost impossible.

So, the Income Tax Act orders purchasers to hold back 25 per cent of the purchase price from a non-resident - unless they get a clearance certificate from the CRA within ten days of the planned sale. The purchaser gets this certificate only if the non-resident has already paid the CRA 25 per cent of the expected capital gain.

Otherwise, the purchaser pays the capital gains tax unless “after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada.”

What is reasonable inquiry for purchasers?

Any inquiry that turns up ‘red flags’, such as a seller having an address outside Canada or signing documents outside Canada, means that a purchaser must investigate further. Otherwise, they cannot conclude that the seller is a Canadian resident. So, the purchaser will pay the capital gains tax.

Anyone purchasing a home in Alberta from someone whom they are not sure is a Canadian resident should consult an experienced real estate lawyer for assistance. Otherwise, they could find themselves owing a lot of money to the Canada Revenue Agency.

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Ridout Barron

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