To own property in Canada can really be profitable if you know the tax laws for real estate in Canada. There is no requirement for residency of citizenship in Canada to buy property. You can temporarily get residence in Canada but you will have to fulfill the immigration requirements if you want to have extended stay or wish to become a permanent resident. Also, non-residents of Canada can get possession of rental property but they need to file the annual tax returns with Canada Revenue Agency.
When you purchase a property, you have to pay provincial transfer tax that is around 1 percent on the initial $200,000 and 2 percent tax on the remaining balance. There is also some exemption for the first property purchase done in Canada. Purchases of new homes are subjected to the federal GST, but for new and builder-renovated homes, one can get a partial debate if he plans to live in that home. The GST is not applicable to the resale homes. Income Tax Act of Canada requires 25 percent of gross property rental income to be remitted each year. If the rental property is incurring losses, then you can reclaim the taxes that are previously paid. Mortgage and property tax, bank loans are tax deductable in Canada in case of the property bought for the reason of investment.
If any of the non-resident of Canada sells property in Canada, the government charges 50% of the capital gain as withholding tax. US residents also have to report their capital gains to Internal Revenue Service. Conversely, if the gain from selling property is taxed in Canada, then you can claim it as foreign tax credit. If non-resident sells a property in Canada, then he has to provide clearance certificate to the buyer which is prepared by Canada Revenue Agency. If this certificate is not provided to the buyer, then the buyer has the right to withhold some percentage of the payment as he will be responsible for any unpaid taxes by the non-resident. On the other hand, if you are Canadian resident and the property is your place of residence, then you are not liable to pay any taxes on capital gains when selling the property. But if you are resident of Canada and own a property but not resident in that place, then you are liable to pay the capital gains for the period you didn’t designate that specific property as your residence.
Real Estate Investment trusts are the public traded corporations that invest in the portfolios of the real estate assets. Most of the REITs based in Canada trade on Toronto Stock Exchange. These REITs must distribute their taxable income to the shareholders as they are work as trusts. In 2007, federal government of Canada legislated that REITs must convert themselves to ordinary taxpaying companies by Jan, 2011 but there were many REITs that were exempted from this legislation. To be exempted from this legislation, the REIT must maintain 95 percent of its income generating from passive revenue sources and 75 percent from rent and capital gains segment of the previous law.
In conclusion, when it comes to own real estate in Canada, the laws are quite liberal. You don’t have to be a citizen of Canada or even you don’t have to live in Canada, and interest expenses and property taxes are tax deductible. For a profitable investment, you must have knowledge of the tax implications in each stage of investment, whether in owning the property and renting or inhabiting it, to ultimately selling it.
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