TOP 3 CANADIAN NON-RESIDENT QUESTIONS WHEN INVESTING IN TORONTO REAL ESTATEBy CondoWong Monday August 26, 2019
Thinking about investing in Toronto real estate?
Make sure you know the answers to the top 3 non-resident questions.
Question 1: Are you considered a resident or non-resident if you just walked out of Canada some number of years ago?
Question 2: Is your status going to change if you buy a property in Toronto now?
Question 3: What are the tax implications after you buy a property?
You are a Canadian living outside of Canada, but do you qualify as a non-resident for tax purposes?
There are 3 minimum requirements that you must satisfy:
#1 You live outside Canada throughout the tax year
#2 You stay in Canada for less than 183 days in the tax year
#3 You do not have significant residential ties in Canada
So what would be considered significant residential ties?
Let me give you some examples.
If you own a home in Canada, you leave it vacant and you use it as a vacation home when you visit Canada, then you have a significant residential tie, you may be considered as a resident in Canada.
If you have a spouse or dependents living in Canada, then you are also considered a resident of Canada.
When you fill out your last Income Tax Return before you move out of Canada, you should enter your departure date in the section called “Information about your residence”.
Here comes Question #1:
You walked out of Canada 15 years ago and started living in another country.
You did not fill out your Tax Return with a departure date.
Are you considered a resident or non-resident?
If you satisfy all the requirements to be a non-resident, then you are deemed to be a non-resident.
It does not matter whether you properly declared your departure date or not.
In other words, your non-resident status is determined by facts, not by paperwork filing.
Question #2: You are now a non-resident.
If you purchase an investment property in Canada, is that going to change your status back to a resident?
The key here is “investment”. If you purchase a property and rent it out for rental income, then this is your investment property.
In this case, you remain as a non-resident. An investment property will not change your status.
If you purchase a property and leave it vacant, then it becomes your home and your status may change to a resident.
Property for rental income, non-resident.
Property for self use, resident.
Question #3: You have bought the investment property and started collecting rental income. What are the tax implications for a non-resident?
The non-resident tax rate is 25% for net rental income.
For example, you collect a rent of $2,000 per month from a 1 bedroom unit. You can deduct expenses such as condo fees, property tax, mortgage interests, rental management fee from your rental income.
Let’s just say you have $1,000 net every month, that’s $12,000 per year. You need to pay 25% of that to the government, which means $3,000 per year.
What happens when you sell the property?
The capital gain tax rate is also 25% for non-residents.
Let’s say your net gain from selling your property is $100,000, you will need to pay 25%, that’s $25,000 to the government. The remaining $75,000 goes to your own pocket.
Those are the top 3 questions and answers that I’d like to share with you today.
If you have further questions, feel free to schedule a call with me.
I may not have the answers to all the tax questions, but my team of accountants can certainly help.
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