Risk & Business Magazine Gillons Risk & Business Magazine Summer 2017 | Page 27

CANADIAN REAL ESTATE
BY: JIM LOCKHART,
TAX PARTNER, BDO
Disposition of
Canadian Real Estate
By A Non-Resident
Of Canada
G
iven the natural beauty of
Northwestern Ontario, it is no
surprise that individuals from
around the world own cottages
here. These individuals are
often surprised when they learn about the
tax issues arising on the disposition of that
cottage property. This is most apparent
when dealing with residents of the United
States that are used to hearing about gift
and estate taxes. Canada does not levy
either a gift or an estate tax. Rather, we
have a deemed disposition of assets at fair
market value when a property is gifted or
upon the death of the owner. This deemed
disposition results in a triggering of the
inherent capital gain in the property.
Whether the property is disposed of by a
sale, or a deemed disposal by gift, the same
procedures must be followed by the non-
resident. These procedures, designed to
protect Canada from a loss of tax revenue,
are complicated and time consuming.
Assuming that the property was for
personal use and enjoyment only (i.e., not
used in a business or as a rental property)
the procedures may be summarized as
follows:
1. Within ten days following the sale or gift,
the non-resident owner(s) must notify the
Canada Revenue Agency of the disposition
and provide their name, the name of the
purchaser(s), the fair market value of the
property, and the cost of the property. This
information is submitted on form T2062
Request by a Non-Resident of Canada for
a Certificate of Compliance Related to the
Disposition of Taxable Canadian Property.
2. The non-resident owners must apply for
a Canadian taxpayer identification number.
3. The non-resident owner must pay
a withholding tax of 25 percent of the
calculated gain on the property. In actuality,
this amount is usually held in a lawyer’s
trust account pending review of the
transaction by the Canada Revenue Agency
4. Should the owner fail to comply with
the above steps, then the purchaser is
obligated to remit to the Canada Revenue
Agency 25 percent of the proceeds (or
deemed proceeds) within thirty days of the
disposition
Fortunately, accountants and lawyers in
Northwestern Ontario are familiar with
these types of transactions, and the owner
is made aware of their filing obligations.
The problem that so often arises is in trying
to document the cost base of the property.
The Canada Revenue Agency requires
that receipts be provided to support
improvements made to the property over
the years. This would include receipts for
items such as docks, decks, roofing, septic
fields, windows, etc. Most owners are not
aware of the requirement to retain those
receipts and may lose out on legitimate cost
base. The Canada Revenue Agency may, on
a case-by-case basis, provide relief if there
is other substantiating evidence such as
photographs, journals, or current estimates
from local carpenters.
A deemed disposition also arises on the
death of a non-resident owner. In such
situations, the notification process outlined
above is not required, but a Canadian tax
return reporting the deemed disposition
must be filed by the estate trustee.
As you can see, non-residents do have many
hoops to jump through in dealing with the
disposition of cottage property. With the
right advice from advisors, the process goes
smoothly. +
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