Is withholding tax based on capital gains from real estate sale or sale price?
I moved out of Canada last year and am a non resident but still own a property there (it was my principal residence, and its not ben rented).
If I sold it then I would be subject to withholding tax, but how is the withholding tax calculated?
Is it based only on any gains made from the sale? If I sold the property but didn't make any profit then is there no withholding tax?
There is no withholding tax on property sale. You have to report the sale on your income tax but it would still qualify for the PR exemption if you sell it without renting it.
Thanks but several documents I have looked at saying there is withholding tax on property sales, such as
http://www.steveorealestate.com/PDF/..._guide_ind.pdf with first line: "Non-resident owners of Canadian real estate often encounter an unpleasant surprise in the form of a significant Canadian Income tax liability when they ultimately sell that real estate."
"Any person purchasing Canadian real estate from a non-resident has an obligation to withhold and remit to Canada Revenue Agency (“CRA”) 25% of the gross sale proceeds with respect to the purchase."
And I've seen similar elsewhere, have I misunderstood what they are saying therefore?
(And also why when I got a recent offer for my property did the buying realtor want to know if I was a non resident if there is no withholding tax on sales?)
Withholding tax and owing income tax are two different things. Withholding tax is money that is taken before you ever see a penny of it and it is counted as a credit against the income tax owed. Sort of like a deposit to the government for the taxes you owe. The overall income tax liability is what you are really asking about and that will probably be calculated based on the difference between your purchase price and sale price. However the fact you left Canada after purchasing the property could complicate things.
For a non resident the withholding is based on the total proceeds unless you file a certificate beforehand. The purchaser is required to withhold. Their agents/lawyers will ensure they do. Talk to your accountant!
If you file the certificate the withholding is reduced to your gain (I'm assuming your sell price less the FMV when you left) -- but before selling costs (including commission)...so sometimes it makes sense to file a Canadian tax return too if the remaining gain and commission amount warrant it. Well worth you while to file this certificate. Can't remember exactly what it's called.
These are specific returns for non residents and include only your income/gain from the property.
Last edited by Charlie; 2012-05-04 at 01:47 PM.
Here's a link to the form:
It seems if you file the form you do have to later file a tax return. But you will always get more money back when you do this as you get to deduct your selling costs when you do the tax return. (Plus you'd be paying tax on the gross proceeds if you don't file the clearance certificate without any regard for your purchase price or principal residence period for your years as a resident -- so it would be foolish not to file the clearance certificate).
With the 1+ rule in the calculation of the princ res exemption, your entire gain may be tax free?? (that bit's just speculation on my part...you'd have to check all the criteria and calculations).