For many people, leaving Canada to work or live in another country does not mean tax obligation has ended with Canada. Here are some tax tips for you, who still own rental properties in Canada.
Understand the tax implications of owning Canadian real estate: Non-resident investors need to understand the tax implications of owning Canadian real estate. The Canadian tax system is complex, and there may be many tax rules for non-residents. First, filing Canadian income tax returns: Non-resident investors who earn rental income from Canadian real estate must file Canadian income tax returns. Even if you have no taxable income, you must file a return to report your rental income and claim any deductions you are entitled to.
New!!! The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The tax usually applies to non-resident, non-Canadian owners. In some situations, however, it also applies to Canadian owners.
While reporting rental income, non-residents can claim allowable expenses: Non-resident investors can claim allowable expenses related to their Canadian rental property, such as property taxes, insurance, and repairs and maintenance. It is important to keep accurate records of your expenses and work with a tax professional who can help you claim all eligible deductions. For example, claiming depreciation, Non-resident property owners of Canada can claim depreciation on their Canadian rental property on their Canadian income tax return. Depreciation is the method of claiming a deduction for the decline in value of the property over time due to wear and tear, obsolescence, or other factors. Non-resident property owners must first determine the class of the rental property. The Canada Revenue Agency (CRA) has established different classes for different types of rental properties, and each class has a different depreciation rate. Once the class has been determined, non-resident property owners can calculate the depreciation deduction for the tax year. However, It is important to note that claiming depreciation can have future tax implications, as it reduces the adjusted cost basis of the property. This may result in a higher income when the property is sold.
Other than those, non-residents who rent out Canadian real estate are required to withhold and remit taxes on their rental income to the CRA. However, if the estimated rental income for the year is less than the estimated expenses, non-residents can apply for an NR6 waiver. This waiver exempts them from the requirement to withhold taxes on gross rental income, but they must still file a Canadian tax return to report the rental income.
What about selling the property? When a non-resident sells Canadian real estate, the Canadian government may hold back a portion of the sale proceeds as a tax withholding to ensure that the seller meets their Canadian tax obligations. However, non-residents may be eligible to apply for a tax waiver to reduce or eliminate this withholding tax. This waiver certifies that the seller has met their Canadian tax obligations and can be issued by the Canada Revenue Agency (CRA) or a designated agent. To obtain this waiver, the seller must provide certain documentation, such as a tax clearance certificate, and pay any outstanding taxes.
It is important to work with a tax professional who can help you apply for the waiver and ensure that you meet all the necessary requirements. Remember all non-resident individuals who dispose of a property and who are required to notify the Canada Revenue Agency (CRA) of the disposition should have a Canadian taxation number. If you are a former resident of Canada, this taxation number is your Social Insurance Number (SIN). If you had a SIN but don’t remember it, please ensure you state this on the notification form along with your date of birth, your complete legal name, and the address you lived at in Canada prior to emigrating. If you do not have a SIN but previously filed a Canadian income tax return, you may have been assigned a Temporary Tax Number (TTN) or an Individual Tax Number (ITN).
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