How To Ensure Rental Income Within Your Corporation is Active Business Income
How To Ensure Rental Income Within Your Corporation is Active Business Income May 5, 2023 Tax Question: How do you ensure your rental income within
Home » News » Canadian Tax FAQs » Disposition of Property by Non-Residents
Tax Question:
What are the tax rules for the disposal of property by non-residents?
Facts:
If a property owned by a non-resident is sold in Canada, then it is subject to Canadian tax. A non-resident must file a Canadian tax return to report the sale and calculate the amount of taxes owing. The risk is on the purchaser (not the seller) as Canada Revenue Agency (CRA) will try to collect tax from the purchaser if the tax is not handled appropriately at the time of the sale.
CRA requires a 25% withholding tax as a default rate of tax on the gross sales price of property held by non-residents of Canada. The tax is not calculated on the profit but on the total gross sales price. This can amount to a lot of tax. There is a mechanism to reduce this tax to a smaller amount however the seller must apply to CRA, with full details, prior to the sale or within 10 days after the date of the sale/disposition. Under this application, the seller can have the withholding tax reduced to be only calculated on the net profit. If the deadline is missed, then penalties will be assigned at a daily rate. Given the narrow window of time to make this application and that it can take a few weeks or more for CRA to process, the seller may miss their deadline. Although the penalty may still be applicable, it is likely that the tax saved would be greater than the penalty so it would still be worth making the application. If the seller misses this window there are two remedies:
The forms involved are T2062, T2062A and non-resident tax returns. The clearance certificate may take a long time for CRA to process; therefore, CRA has a system to issue a comfort letter to the purchaser if requested in a timely manner.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
How To Ensure Rental Income Within Your Corporation is Active Business Income May 5, 2023 Tax Question: How do you ensure your rental income within
Canadian Sales Tax Rates for 2023 January 30, 2023 Question: What are the sales tax rates across Canada in 2023? Facts: The table below outlines
How To File a GST/HST Return January 10, 2023 Question: How do you file a goods and services tax (GST) / harmonized sales tax (HST)
Shareholder Loans and Personal Expenses December 5, 2022 Question: What are Shareholder Loans and how are personal expenses recorded? Facts: The Shareholder Loans category may