Information Provided Courtesy of Steve Turner, Ardaugh, Hunter,
Turner.
Sales of Property by Non-Resident Vendors
It is a condition of a Non-resident selling property in Canada
that they first obtain a Clearance Certificate from Revenue
Canada. The current wait for a Clearance Certificate (October
1999) is approximately 6 to 8 weeks. Prior to Revenue Canada
issuing a Clearance Certificate they will wish to collect any tax
payable with respect to the property—this will include any tax
payable on the rental income from the property which has not
already been remitted as well as tax on the capital gain
experienced on the property and possibly recapture of capital cost
allowance.
In calculating the capital gain on the property Revenue Canada
allows only the following to be added to the purchase price to
determine the adjusted cost base:
- Property Transfer Tax;
- Legal fees and disbursements in conjunction with the
purchase;
- Furnishings and renovations included in the selling price;
(receipts for the included items will be required)
- GST;
- A portion of the interest on mortgage payments (only if the
Vendor has properly elected to have a portion of the interest
capitalized on their tax return).
Revenue Canada does not allow any deductions from the selling
price in determining the gain (ie. you cannot subtract the real
estate commission, legal fees or GST paid on the selling). The
amount required to be remitted on the gain is 33.333 percent of
the gain. By filing a Canadian tax return subsequent to the sale,
some of the tax paid may be recovered.
Vendors should contact their accountants or lawyers with respect
to requesting a Clearance Certificate as soon as an accepted offer
has been received with respect to the property. Should the
completion date be prior to the issuance of the Clearance
Certificate, a holdback of between 33% and 50% of the sale price
will be required by the Purchaser's solicitor until the Clearance
Certificate is issued.
Please note that the Purchasers solicitor may take the position
that if the property has been rented out it is a commercial
property and therefore the holdback is 50% of the sale price not
331/3%. There is case law supporting this position.
Our firm's legal fees for obtaining a Clearance Certificate and
handling the sale on behalf of a Vendor having clear title to a
property is $700.00 plus disbursements and PST and GST.
In the event that the Vendor has a mortgage to be cleared, the
charges are $850.00 plus disbursements, PST and GST (total
approximately $1,000.00).
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