• Kiki Berg

Buying Canadian Properties for Non-Residents.

Buying Canadian Properties for Non-Residents.


Who can buy real estate in Canada? Canada welcomes home buyers from all countries, and there are no restrictions on the amount or kind of real estate you can buy. Some banks will restrict the number of properties they will finance to 5 properties per person. Additionally, as of April 21, 2017, there is a 15% Non-Resident Speculation Tax that must be paid by non Citizens and non-permanent residents (including corporations and trusts) – read the details here. BC Speculation Tax


I’m a Canadian citizen living in a different country. Would I be considered a non-resident for the purposes of buying real estate if I’m an expat? Citizens of Canada who don’t reside in Canada for more than half the year are considered non-residents by banks (and thus subject to all the same rules) but not by the government for the purposes of the non-resident speculation tax. Canadian citizens are not subject to the 15% non-resident speculation tax.


I’m a non-resident and want to purchase a property in Canada with a resident. How will that be treated? If you buy a property with a non-resident, you will be treated by a Canadian bank as a non-resident and thus subject to the same requirements, including a higher downpayment. If you are purchasing with a spouse who is a permanent Canadian resident, you are not generally subject to the Non-Resident Speculation Tax.




FINANCING Q&A FOR NON-RESIDENTS


Can a non-resident get a mortgage to purchase a house in Canada? Yes! Usually Canadian banks and lenders require non-residents have a minimum 35% down payment (in other words, 35% of the cost of the home paid for in cash, with a maximum of 65% of the home’s value provided as a mortgage). Different banks have different rules of course, and some will be more strict than others.


How do I qualify for a mortgage as a non-resident? To qualify for a mortgage for a property in Canada, non-residents will generally require:

  • A 35% downpayment (not from gifted funds)

  • A reference letter from their bank

  • An employment letter verifying income in Canadian or US dollars

  • Three months bank statements

  • Canadian credit bureau

  • US Credit bureau

  • Disclosure of all rental properties and mortgages outside Canada


What kind of interest rate will I get on a mortgage as a non-resident? Non-residents are eligible for the same interest rates as Canadians, provided they meet the mortgage eligibility criteria. If you live in a country that does not have a tax treaty with Canada, you will only be eligible for a fixed-rate interest rate. [See a list of countries that have in-force tax treaties with Canada]

If you don’t meet the eligibility requirements, you may still be able to get financing from other lenders who charge higher interest rates.


Will Canadian banks consider rental income as part of my income? Most lenders will only consider rental income from Canadian properties, and thus rental income from properties outside of Canada will not be considered part of your income to qualify for a Canadian mortgage.


How long does the down payment have to be in a Canadian bank? Normally, most Canadian banks will require your down payment to be in a Canadian bank for 30 days before the closing of the purchase. Most banks will want to be able to trace the source of your down payment going back 90 days.


What’s a deposit, when do I need it and how do I pay it? After you’ve made an offer on a property in Canada, you’ll need to provide a deposit – usually around 5% of the purchase price – within 24 hours. That deposit is held in trust by the listing brokerage and forms part of the down payment when it comes time to take possession of the property. It’s a good idea to open a Canadian bank account and have the deposit in the bank account when you start the search for a property – when you are ready to pay the deposit, they can either issue a certified cheque for you, or they can arrange to send the deposit funds via wire transfer.


What kinds of closing costs should I expect to pay? As a non-resident, you will have to pay the 15% Non-Resident Speculation Tax (BC) and be subject to the other regular closing costs, including land transfer taxes and legal fees.


Will I qualify for any government programs? As a non-resident, you will not qualify for the first-time buyer programs or land tax rebates offered by the Canadian government.


I don’t need a mortgage. How do I pay for the property? You can buy a property without getting a mortgage if you have 100% of the funds in cash. That money would need to be transferred to your lawyer before closing on the property.



LEGAL QUESTIONS FOR NON-RESIDENT BUYERS

Do I need to come to Canada to buy a property? You can buy a property from anywhere in the world (it’s amazing what we can do with video and Skype), but note that you will be required to come to Canada to open a bank account (and yes, you’ll need a Canadian bank account if you are getting a Canadian mortgage). To take ownership of the property (we call that ‘closing’), you can do that with a notary public in the country you are in – your Canadian lawyer can take you through exactly what is required.


Where do I find a lawyer who can help me with the purchase as a non-resident? We work with some excellent lawyers who are familiar with the intricacies of working with non-residents. We’d be happy to recommend them!


How do I sign the mortgage paperwork? You don’t need to sign any of the offer paperwork in person – you can do that one of 2 ways:

1 – You can scan and email back the signed documents.

2 – As of July 1, 2015, electronic signatures are legal in BC, so if you’re working with a tech-savvy Mortgage Broker (like us!), you’ll be able to sign the legal offer paperwork on a tablet or smartphone.

3 - You do need to come to Canada to sign official legal documents in most cases. We have had exceptions of signing out of country with some Lenders.


INSURANCE QUESTIONS FOR NON-RESIDENTS


How do I get insurance as a non-resident? What are the requirements? It can be tricky to get home insurance if you don’t reside in Canada, but we have some excellent insurance agents we can put you in touch with.


How much will home insurance cost? Costs for insurance depending on what you buy and where. A good insurance agent can guide you along.


MONEY QUESTIONS


What kinds of taxes will I have to pay? If you are buying in the Vancouver region, there are four kinds of taxes you need to be prepared to pay: the Non-Resident Speculation Tax, land transfer taxes, property taxes and income taxes.


The Non-Resident Speculation Tax is equal to 15% of the price of the property and paid upon closing.


When you take possession of the property, you’ll pay land transfer taxes, which in Toronto, can be significant. Land transfer taxes are based on a sliding scale dependent on the price of the property.  


Every year you’ll need to pay property taxes

If you are buying an investment property and have tenants who pay you rent every month, the government will require you to pay income tax on that rent (just like any other income earned in Canada). A good accountant can help you remit this money to the government and file a Canadian tax return.


The other income taxes you need to be aware of must be paid when the property is sold. In most cases, non-residents are subject to tax on any income or gains resulting from the sale of a taxable Canadian property, including residential homes, condos, vacation properties or land. (Known as Capital Gains Tax; the increase in value of your property over the time you have owned it is known as a Capital Gain) When a non-Canadian-resident sells a property, the Buyer of the property must withhold and remit a portion of the purchase price to the Canada Revenue Agency (CRA). Generally this amount is 25% of the gross selling price. (Note that the actual tax owing may be different, this is just to make sure the government will get its money by stopping the money from leaving the country until they can determine what is actually owing.)


Alternatively, a Certificate of Compliance related to the sale of the property can be filed and approved by the CRA to reduce or eliminate the withholding taxes. Upon filing of this Certificate of Compliance, the 25% withholding tax required is calculated on the gross sales proceeds net of the purchase cost of the property (or in other words, the net profit).


Also, non-residents are required to file a Canadian tax return by April 30 following the year they sold their property. Generally, upon filing a tax return, part of the withholding tax is refunded to the Seller as the 25% withholding tax is usually a lot higher than the actual taxes owing. At this point, you can also claim expenses like legal fees and commissions against the income from the sale.


What kinds of closing costs can I expect? Here are the costs you need to be prepared to pay when buying a property in Vancouver Area:


Before Closing

  • Deposit (usually 5% of the purchase price, paid within 24 hours of your offer being accepted)

  • Property Appraisal ($400- $500, your cost)

  • Home Inspection ($400-$600, your cost, paid to the home inspection company at the time of the inspection)

On Closing

  • Balance of the Purchase Price – the purchase price less your initial deposit. Usually, the bulk will come from your lender and become your mortgage.

  • Legal Fees – amount varies depending on purchase price and lawyer (approximately $1,800 for a $500,000 purchase)

  • Title Insurance – sometimes included in your legal fees ($250-$400)

  • Mortgage Broker Commission – if applicable, usually paid by the lender

  • Property Survey – if required  ($1,000-$2,000)

  • Non-Resident Speculation Tax – 15% of the purchase price

  • Property Tax - https://www.bcrealestatelawyers.com/ptt-calculator/

  • Property Tax Adjustment – reimbursement to Seller of property taxes they paid beyond the closing date

  • HST – generally only applicable on new construction condos and houses

  • Provincial Sales Tax – only applicable on chattels purchased from vendor (amount varies)

  • Adjustments for Utilities/Condo Fees/etc. – reimbursement to Seller for prepaid utilities, etc. (amount varies


Do you have other questions? We’d be happy to help answer them and lead you on the path to home ownership in Canada.


Kiki Berg - Professional Mortgage Strategist