Non-Resident selling property in Canada.
Why do you need to know if the seller is a non-resident and how would that
affect you as the buyer? Well, according to this court case,
published by the Global Mail,
this bar was on the hook for $92,000 all because
his team didn't do enough due diligence if the seller was a non-resident.
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Our Canadian tax law states that a purchaser of Canadian real estate must
withhold 25% of the sale price to pay for any income tax if
the seller is a non-resident.
Now this can be as high as 50% if it was used as an income property or
investment property in Canada. This can apply,
if you originally bought your home as a non-resident. For example,
for family children go to university,
or you bought it here as a resident and then relocated outside of Canada.
With the latter, most people end up renting it out.
Why is this important for you as a buyer?
You can be on the hook for the sellers income tax obligations,
if you don't do your due diligence.
What are some common questions as a buyer such as well?
How do I check to see if there's enough equity?
What happens if the seller doesn't have that equity and how do I protect myself
as a buyer for a bill worth potentially tens of thousand dollars or more.
I'm going to share some important tips after the following steps to deal
with this type of situation. Step #1 - you have to be aware,
and this really starts with your Realtor.
Now is the property tenant occupied or vacant?
Your realtor must ask the right questions. Step #2,
ask the right questions. Ask the listing realtor,
where is the seller right now? Is that their permanent residence?
Or are they just visiting? And have they declared themselves as a non-resident?
Step #3, start your due diligence. Now, if they are a non-resident,
then you can ask them for their most current mortgage balance to see how much
equity is in the property.
And you can also ask to see their driver's license and make sure that it's
current and not expired.
And you want to make sure you check the address. Step #4,
seek professional advice. Now,
a lawyer is someone that you want to consult before you write the offer so
that you know what the right terms to put in the purchase contract.
How do I protect myself as the buyer for a bill worth potentially tens of
thousands of dollars or more? Well, number one, you want to check your equity.
Two clearance certificate. Now you want to get this from the seller.
And it's issued from the CRA the Canada revenue agency,
and it states that the seller has paid all the amounts of tax interest and
penalties that they owe for the property at the time the certificate was issued.
Now, the certificate is really there to protect the buyer because the buyer is
ultimately responsible for paying the non-resident capital gains tax in Canada
for real estate. And this normally takes about 90 days,
but at the time of this recording, it's about 120 days. Now for the seller,
you need to submit the clearance,
submit for the clearance certificate once the deal is FIRM. Now,
what happens if the seller doesn't have that equity? Well,
you have two options. Number one,
you can still take possession as the buyer with tenancy at will.
It means that you take possession, but the funds don't actually transfer,
and you're basically just renting from the seller as a buyer.
It is your right to exercise this option because you have performed on the
contract, whereas a seller has not option.
Number two is delayed closing until the clearance certificate is provided to the
buyer. What are some tips in a situation like this,
where you are dealing with a non-resident selling property in Canada? Well, a
warning signal is if the seller signs the contract and they are from outside of
Canada as a realtor, you want your realtor to read the realtor remarks.
Sometimes it will say,
leave the offer open for 24 hours as a sellers out of the country.
You want to state in the terms that the seller agrees to sign a sworn affidavit
or make a solemn declaration about the residency status.
Cross out the part in the contract stating that the seller is a resident of
Canada,
and you want to Google non-resident sale of property in Canada and
non-resident capital gains tax in Canada.
You can also check out the CRA website. For Sellers - now,
if you're a resident, you have nothing to worry about! But,
if you don't have enough equity,
then your lawyer may ask you to bring the difference between your mortgage
balance and 25% equity to put into their trust account. Now,
it's very important that you be proactive.
You can start the process early on with a pre-clearance before you even list a
property.
Then when you have a firm deal,
you can apply for the official clearance certificate,
which should take much less time since CRA knows about your situation.
The biggest takeaway when dealing with a non-resident selling property in Canada
is really your realtor's responsibility. Unfortunately,
the average realtor in Alberta only does three to four deals per year.
And even realtors who have been in business for 18 years,
like the one I was just dealing with may not have dealt with something like this
before. So what do you need?
You need a lawyer and you need an accountant and a realtor
that knows their stuff.
If you know someone who is a non-resident selling real estate in Canada
or if you have friends or family looking to buy property here from another
country, then you want to make sure you send them this video. Now,
if you want more tips about real estate,
then make sure you check out a real estate tips playlist,
where we talk a lot about unconventional things - like multiple offers,
how to negotiate with real estate in a hot market so that you can avoid other
buyers from bidding up the price,
questions to ask a realtor when you're interviewing them and how to
become a real estate investor.
Now I'm going to put the links at the end of this video. My name is Felix Chan,
Calgary realtor, and mortgage broker with the LiveInnerCity real estate team.
And we'll see you in a few seconds.