Section 1: Non-Resident Buyers

Financing and Documentation:

1. Non-residents can buy and sell in Canada.

2. Deposit requirements for non-resident buyers (20% for US residents, 35% for residents of other countries).

3. Documents needed for a Canadian mortgage for non-resident buyers, including proof of income, bank statements, reference letter, credit report, and a Canadian bank account.

Section 2: Non-Resident Sellers

Tax Compliance and Documentation:

1. Obtaining a Certificate of Compliance can take weeks to months, and without it, the buyer’s lawyer must withhold 25% (soon to increase to 35%) of the sale price. Both documents align in terms of withholding tax and the legal process involved.

2. Use  T2062 REQUEST BY A NON-RESIDENT OF CANADA FOR A CERTIFICATE OF COMPLIANCE RELATED TO THE DISPOSITION OF TAXABLE CANADIAN PROPERTY  and for the importance of determining residency status. 

   1. This document is to be used when your Seller client is a non-resident of Canada. You are to discuss with your client whether or not they are a non resident for purposes of the income tax act. Once you have an offer, the lawyer will need this form filled out. It is best to include this as a term in the contract so when needing the Buyer info, no one is asking why. Read here prior to discussing "non-resident" but ultimately, have them discuss with their lawyer/accountant to Determine Their Residency Status

3. Requirement for a Letter of Comfort from the CRA for non-resident sellers.

   1. Everyone selling a property that is not considered their personal residence is required to be assessed for a capital gain. BUT, when the Seller is also a non resident of Canada, the best course of action is to have them get a Letter of Comfort from the CRA. Also discuss the potential selling of their property with their lawyer. 

4. Forms for determining residency status (NR74 for entering Canada, NR73 for leaving Canada).

   1. In determining as to whether they are non residents, coming into or leaving Canada, these forms should be considered by your client: 

NR74 DETERMINATION OF RESIDENCY STATUS (ENTERING CANADA)

NR73 DETERMINATION OF RESIDENCY STATUS (LEAVING CANADA)

Tax Implications:

Scenario 1: No Certificate of Compliance or Letter of Comfort

Withholding Tax for Non-Resident Sellers:

• Standard Withholding Rate: Currently, the withholding tax is 25% of the gross sale proceeds for non-resident sellers. However, starting January 1, 2025, this withholding rate will increase to 35% of the gross sale price.

• Seller's Obligation: After the sale, the non-resident seller is required to file a Canadian income tax return (Form NR6 or NR4) to report the actual capital gain and calculate their final tax liability. The withholding is a prepayment, and the seller may be eligible for a refund if the tax withheld exceeds their actual tax liability.

Withholding Tax for Buyers:

• Buyer's Responsibility: The buyer (through their lawyer) must withhold the applicable tax (currently 25%, increasing to 35% in 2025) from the sale proceeds and remit it to the Canada Revenue Agency (CRA) within 30 days of closing. Failure to do so can make the buyer liable for any unpaid taxes by the seller.

• Verification: It is critical for the buyer to determine if the seller has obtained a Certificate of Compliance or a Letter of Comfort from the CRA. If neither document is provided, the buyer must proceed with the full withholding.

Scenario 2: Seller has Obtained a Certificate of Compliance

Withholding Tax for Non-Resident Sellers with Certificate of Compliance:

• Reduced Withholding Rate: If the non-resident seller has obtained a Certificate of Compliance from the CRA, the withholding tax is typically reduced from the standard rate. The CRA specifies this reduced amount, which reflects the estimated capital gain and tax liability.

• Seller's Obligation: Even with a Certificate of Compliance, the seller must file a Canadian income tax return after the sale to report the actual capital gain and calculate their final tax liability. Any shortfall or excess in the amount withheld will be addressed at that time.

Withholding Tax for Buyers:

• Buyer's Responsibility: The buyer must withhold the reduced amount specified in the Certificate of Compliance and ensure it is remitted to the CRA within the specified timeframe, usually within 30 days of closing.

• Verification: The buyer (or their lawyer) should verify the validity and accuracy of the Certificate of Compliance provided by the seller. This ensures the correct withholding amount and protects the buyer from any potential liability

Legal Advice:

• Seek legal and tax advice to ensure compliance with Canadian tax laws and regulations, especially when dealing with withholding tax obligations for non-resident sellers.

• We should stress the importance of timely consultation with accountants and lawyers to prevent delays or financial complications.

Section 3: Buyer's Protection Terms

1. Deposit Protection through Legal Counsel:

   1. Specify the conditions under which the buyer's deposit will be held in trust.

      1. Deposit Protection through Legal Counsel:

         • Specify that the buyer's deposit will be held in trust by the buyer's lawyer or notary until certain conditions are met, such as the seller obtaining probate or a Clearance Certificate.

2. Legal Review and Confirmation:

1. Include a condition requiring the buyer to seek independent legal advice. 

   1. Legal Review and Confirmation:

• Include a condition requiring buyers to seek independent legal advice to ensure that they fully understand the implications of the transaction and to confirm that the seller has the legal right to sell the property.

3. Probate Confirmation Clause:

1. Make the sale contingent upon the seller obtaining probate or equivalent legal confirmation.

   1. Probate Confirmation Clause:

• State that the sale is contingent upon the seller obtaining probate (or equivalent legal confirmation) before the closing date, and that the buyer has the right to terminate the contract if this condition is not met.

4. Clearance Certificate Contingency:

1. Include a contingency clause requiring the seller to obtain a Clearance Certificate before closing.

   1. Clearance Certificate Contingency:

• Add a contingency clause stating that the sale is contingent upon the seller obtaining a Clearance Certificate from the Canada Revenue Agency before the closing date.

5. Notification of Legal Issues:

1. Require the seller to promptly notify the buyer of any legal issues.

1. Notification of Legal Issues:

• Require the seller to promptly notify the buyer of any legal issues that may arise during the process, particularly those related to their residency status and the ability to sell the property.

Section 4: GST Considerations

Seller's Residency and GST:

Real estate professionals should ascertain the seller's residency status, particularly if they are a non-resident of Canada. If the seller is a non-resident, the buyer assumes responsibility for remitting any applicable Goods and Services Tax (GST). The purchase contract should explicitly state the seller's non-resident status, with the buyer committed to remitting the GST. Buyers are advised to consult with a GST expert during negotiations.

For purchase prices inclusive of GST, the contract must acknowledge the buyer's payment of applicable GST, with the seller responsible for determining and remitting the GST to the Canada Revenue Agency (CRA).

If the purchase price is exclusive of GST and the seller is a non-resident, the buyer is obligated to remit the GST. During negotiations, buyers should consider this and seek guidance.

If the Seller is a Non-Resident of Canada:

For purchase prices exclusive of GST with a non-resident seller, the buyer must remit the GST. Buyers should seek legal counsel to draft appropriate clauses in the offer to purchase, with an additional disbursement required at closing to cover the GST.

Updating the Brokerage File:

Real estate professionals must update the brokerage file accurately to reflect discussions, document buyer decisions, and include obtained information or records.

Practice Tip:

Buyers with GST-related questions should consult a GST expert. 

The following checklist identifies the due diligence activities a real estate professional should undertake when representing buyers regarding GST. It is not an exhaustive list of all GST-related matters that may relate to a potential real estate transaction, but is provided to assist real estate professionals in their residential practice. 

Section 5: Checklist for Due Diligence:

1. Seller's Residency Status:

• Verify if the seller is a non-resident of Canada. It is important to identify non-resident sellers early in the process to avoid complications.

• Understand the implications of the seller's residency status on GST.

2. GST Responsibility in the Purchase Contract:

• Determine if the purchase price is inclusive or exclusive of GST.

• If inclusive, ensure the contract states that the seller acknowledges the buyer has paid all applicable GST.

• If exclusive, confirm whether the seller is a non-resident, as the buyer may be responsible for remitting the GST.

3. Legal Counsel for GST Clauses:

• Advise the buyer to seek legal counsel to draft applicable GST clauses in the offer to purchase.

• Ensure the buyer is aware of the additional disbursement for GST at closing if the purchase price is exclusive of GST.

4. Update Brokerage File:

• Document all discussions with the buyer regarding GST.

• Record the buyer's decisions, actions, and any information or documentation obtained related to GST.

5. Buyer's Questions to GST Expert:

• Encourage the buyer to discuss any GST-related questions or concerns with a GST expert.

• Ensure the buyer is well-informed about the GST implications for the specific property and transaction.

6. Contract Negotiation Considerations:

• Educate the buyer on potential considerations during contract negotiation if the seller is a non-resident and GST responsibilities are involved.

7. Review of Legal Documentation:

• Conduct a thorough review of all legal documentation, including the purchase contract, to confirm that GST considerations are accurately reflected.

8. Communication with Buyer:

• Maintain open communication with the buyer throughout the process, addressing any new information or changes related to GST.

9. Closing Process:

• Coordinate with legal professionals to ensure a smooth closing process regarding GST obligations.

• Confirm that all necessary steps are taken to meet GST requirements before and during closing.

10. Ongoing GST Updates:

• Stay informed about any changes in GST regulations and inform buyers of potential impacts on their real estate transactions.

***This document is for discussion purposes only and does not constitute legal advice. The realtor is not considered an expert in legal or accounting matters. Any information provided is general and may not be applicable to specific situations. It is strongly recommended that readers seek independent legal and accounting advice tailored to their individual circumstances before making any decisions or taking actions based on the content of this document. The realtor and any involved parties disclaim any liability for errors or omissions in the information provided. No client-professional relationship is established, and any communication should not be construed as such. By engaging in discussions or reviewing this document, parties acknowledge the limitations outlined and release the realtor from any claims or liabilities arising from the use or interpretation of this document.***