Real Estate Tax
GST/HST Housing rebate
If you are purchasing a new home from a builder, you are entitled for the GST/HST New housing rebate; if you are purchasing the new property for rental purpose, then you are entitled for the GST/HST new residential rental property rebate.
CRA regularly audits new homeowners for GST/HST rebate to ensure the claimants meet the requirements. For example, if the purchaser or his relations changed intention to move in afterward and lease it out, he should file GST/HST rental property rebate and replace previously filed new housing rebate within two years time frame, after two year it is impossible to replace that application.
Non-resident disposes of real property
All non-resident vendors who dispose of a property are required to notify the Canada Revenue Agency of the disposition within 10 days of the date the property was disposed of under Section 116 of the Income Tax Act (ITA). The penalty, under subsection 162(7), for failing to file or submit a notice on time is $25 a day. There is a minimum penalty of $100 and a maximum penalty of $2,500. At the absence of a clearance certificate, the purchaser is required to withhold and remit to the CRA 25% of the purchase price within 30 days after the end of the month of closing.
This usually takes Canada Revenue Agency three months to issue the clearance certificate. To reduce the withholding time as possible, you should consider sending in the notification once you received a firm deal from your potential purchaser.
Principal residence: Change in use
Whenever you change the use of a property, it is specified in section 45(1) of the tax law that you are deemed to have sold the property at its market value and immediately repurchased it for the same amount. This means you must report this sale in your tax return for that year and pay any resulting capital gains tax if it’s not your primary residence.
However, the tax law provides an option under section 45(2) or 45(3) to exempt you from paying the above-mentioned capital gains tax. If you choose this option, your property can continue to be considered your primary residence even if it’s being rented out. The tax authorities will treat it as if the change of use under section 45(1) did not occur, allowing you to maximize the benefits of the principal residence exemption. Typically, you can opt for an additional 4 years, and this time limit doesn’t apply if the change in property use is due to employment-related reasons.
Assignment of a purchase and sale agreement
An individual who acquires an interest in a new house before it has been occupied by an individual as a place of residence made an assignment sale may have GST/HST implication, if the individual acquires the interest in the course of a business or an adventure or concern in the nature of trade. If the assignment sale is determined to be taxable for GST/HST purpose, the individual assignor is obligated to charge GST/HST on the assignment sales and remit tax to Canada Revenue Agency, by filing proper returns.
Non-Resident Speculation Tax Rebate
Starting from April 21, 2017, overseas buyers purchasing residential properties in the Golden Horseshoe region of Ontario (expanding to the entire province as of March 30, 2022) are subject to a Foreign Buyer Tax of 15% of the purchase price (increased to 20% on March 30, 2022, and further increased to 25% on October 25, 2022). This tax applies to non-Canadian citizens or non-permanent residents, including overseas corporations and trustees. According to Regulation 182/17 in the Ontario Land Transfer Tax Act, the following circumstances allow overseas buyers to claim a refund of the tax:
1. Becoming a Canadian Permanent Resident: Overseas buyers become Canadian permanent residents within 4 years after the property purchase (as of March 30, 2022, only this condition allows for a refund).
2. International Students: Overseas buyers are international students at the time of property purchase and have been registered at a designated school, continuously studying full-time for at least two years.
3. Working in Canada: Overseas buyers hold a valid work permit at the time of property purchase and have been working full-time in Canada for at least one year.
To qualify for the above refund conditions, overseas buyers must personally hold the property or hold it jointly with their spouse. Overseas buyers (either themselves or their spouse) must move into and use the property as their primary residence within 60 days after the property transfer.
