Real Estate Tax in Canada
Tax Issues on the Sale of Real Estate in Canada
When a German client sells real estate in Canada, he/she will have to pay capital gains tax on the appreciation of the property since the date it was originally purchased.
The tax is calculated on one half of the increase in value of the real property from the date it was purchased to the date it was sold. Furthermore, persons not resident in Canada must pay withholding taxes in connection with income earned in Canada.
When real estate that is owned by a Canadian non-resident is sold, a so-called “Clearance Certificate” must be applied for in connection with the sale. The application for the Clearance Certificate must be made within a short deadline after the closing of the sale.
The effect of these tax aspects is that a non-resident vendor of real estate will generally receive his/her sales proceeds in various stages. Immediately after the sale, approximately three-quarters of the sales proceeds can be disbursed. Then, once the Clearance Certificate has been issued by Revenue Canada or CRA, a further portion of the sales proceeds can be paid out to the vendor. Lastly, once a final income tax assessment has been made by CRA, any refund owed will be paid out to the vendor.
This process can take up to eighteen months to complete. We recommend hiring qualified tax and legal professionals to assist with all required income tax filings in order to avoid delays and penalties.