The non-resident’s guide to tax rules of buying a rental property in Canada
Buying in any foreign jurisdiction involves the need to operate under the legal system of that country. This is not as terrifying a prospect as one may assume, because the purchaser will work with experts to assist with local legal and tax matters.
Canada has complex tax laws, you will need an accountant to assist you. The reason for the complexity is due in part to the fact that Canada is a federation with 10 provinces and 3 territories co-existing under one nation. This means that there are 14 different sets of laws! To further complicate it, there are 2 different legal systems operating in Quebec – the common law and civil law work in tandem.
None of this should put someone off purchasing property in Canada, because luckily accountants are very affordable and you only need a lawyer once, to complete your property transaction. You can expect to pay anywhere from $350 to $800 a year for your accountant, depending on the amount of work the accountant is doing for you. It is worth shopping around for accountants, as fees tend to vary.
Canadian Tax Rates
The tax rate on the first $37,178 earned though rental income is taxable at a rate of 23%. Canada has income tax treaties with several countries (the UK being one of them) so this may reduce the taxable income rate.
GST on rental income
GST applies to holiday lettings in
Canada. GST is not payable on long term accommodation, so if you
intend to let out the property for the purpose of someone’s main
residence, you will not need to collect GST from that person.
Your
management company will collect GST from visitors to your property.
You will need to have your accountant have a copy of your agreement
with the management company to see who is refunding the GST to the
government at the end of the year.
Sales tax exemptions
When a new home is purchased in Canada,
the 6% GST (Good’s and Services Tax) is payable, plus any provincial
tax . This includes the 7.5% QST (Quebec Sales Tax) for any purchase
in the province of Quebec.
An exemption is possible for
anyone who does not use their property for more than 10% per year (a
maximum of 36 days a year, or 9 days in the case of fractional
ownership).
In order to benefit from this exemption, the
purchasers must register for GST (or/and QST in the case of Quebec)
before the purchase completes.
Possible deductions
Taxation pertaining to obtaining rental income in Canada favour the owner/renter. There are so many deductions possible, that it is crucial that you keep all receipts in a safe place, ready to be handed over to your accountant at the end of the fiscal year.
Examples of possible deductions are: mortgage interest, property taxes, insurance, maintenance costs, heat, electricity, water costs, management fees, some travel expenses, furniture, repairs, etc.
Mortgage interest payments are also deductible in full. This works to the advantage of the owner in a significant way, so the copy of the mortgage agreement as well and a repayment record should be supplied to the accountant.
Capital gains tax (CGT)
On sale of your property, you will have to pay the government a tax on the difference between what you paid for the property and the sale price. If there was actually depreciation, you will be able to deduct the depreciated difference to any income.
The actual amount of CGT payable is 50% taxed on half the amount of appreciation. This has the effect that you will pay no more than 25% of the gain you receive.
Finding an accountant
Below are links that will allow you to find a suitable accountant in the province and region where you are purchasing. If you would like any assistance in your search, your Ski Safari representative will be happy to help.
Alberta:
http://www.icaa.ab.ca/databases/bin/refrsearch_service.cgi British Columbia:
https://www2.cga-bc.org/members/findacga/index.shtmlNewfoundland:
http://www.ican.nfld.net/public.htm Ontario:
http://www.icao.on.ca/public/apps/CADirectory/CADirectory.aspx Quebec:
http://ocaq.qc.ca/ang/2_protection/2_1_1_bottinCA.asp Ski Safari is dedicated to customer satisfaction. If there is any way we can help, please do not hesitate to ask your representative. If we don’t have the answer, we will find the person that does.