If you’re a non-resident of Canada planning to sell property, it’s essential to understand the tax implications and compliance requirements involved. One crucial aspect is that 25% of the gross selling price can be withheld by your lawyer until you receive a Certificate of Compliance from the Canada Revenue Agency (CRA). This ensures that your tax obligations are met before funds are fully released. In this blog, we will guide you through the process and what you need to know to avoid penalties and minimize your tax liability.
1. The Role of the Certificate of Compliance
As a non-resident, you must apply for a Certificate of Compliance with the CRA after selling Canadian property. The CRA typically takes 6 to 9 months to process this certificate, so it’s crucial to plan ahead. The responsibility to apply lies entirely with you, the seller, and must be done within 10 days of the property’s closing date.
Failure to apply within this period may result in penalties. The CRA can charge a late-filing penalty of $25 per day, up to a maximum of $2,500. Missing this deadline can be a costly mistake, so taking action promptly is critical.
2. What Happens While You Wait?
During the CRA’s review of your Certificate of Compliance request, your lawyer will withhold 25% of the gross sale price from the proceeds. This withholding is not the final tax amount but a provisional measure until your tax liability is accurately calculated.
3. Filing a Section 116 Return
Once you obtain the Certificate of Compliance, your next step is to file a Section 116 return by the end of the calendar year. This return is an important filing, as it allows you to claim selling expenses like real estate commissions, legal fees, and other costs associated with the sale. These deductions can reduce your overall tax liability and may even result in a tax refund, depending on your situation.
4. Why You Need Professional Assistance
Navigating the complexities of Canadian tax laws as a non-resident can be challenging. The withholding, deadlines, and multiple forms require careful attention, and mistakes can lead to costly penalties or overpayment of taxes. Working with a knowledgeable accountant or tax professional who specializes in non-resident tax issues can streamline the process, ensuring compliance and minimizing taxes.
5. How Tax Return Filers Ltd. Can Help
At Tax Return Filers Ltd., we assist non-residents through every step of the process, from applying for the Certificate of Compliance to filing the Section 116 return. Our team of tax professionals will ensure your selling expenses are properly documented, and your tax liability is minimized.
If you’re a non-resident selling property in Canada, don’t navigate the complex tax requirements alone. Contact us today to receive personalized guidance and avoid any surprises down the road.