Are you selling property as a non-resident in Canada? You may have heard of something called a “non-resident holdback.” While it sounds simple, the process behind this concept can quickly become complicated – and costly – if you don’t handle it correctly.
Whether you’re a buyer or a seller, navigating legal requirements, tax implications and paperwork can feel overwhelming. A real estate lawyer can help you avoid pitfalls and ensure a smooth transaction.
This blog post will explain what a non-resident holdback means, why it matters and how an experienced lawyer protects your interests.
What Are Non-Resident Holdbacks in Canada?
Non-resident holdbacks are a financial safeguard the Canadian government uses to ensure that you, as a non-resident, pay any taxes owed on the sale of Canadian property.
The Canada Revenue Agency (CRA) has no jurisdiction to enforce tax laws in other countries, so non-residents may leave Canada without paying taxes.
To prevent this, the government requires that 25% of the sale price be held back and remitted to the CRA as a non-resident tax.
What Are Some Possible Complications for Non-Residents?
While non-resident holdbacks are a standard procedure in Canada, they can complicate real estate transactions for foreign sellers. Some common challenges include:
- Cash Flow Management: 25% of the sale price can represent a significant portion of the proceeds, making it difficult for non-residents to manage cash flow if they have other financial obligations.
- Access to Funds: The funds held back must be remitted to the CRA, and sellers may need easy access to these funds abroad.
- Double Taxation: Non-residents may face double taxation if their home country also taxes capital gains on foreign properties. Fortunately, Canada has tax treaties with many countries that can help mitigate this issue.
- Timing: The holdback process can delay the finalization of a sale, which can be problematic if the seller has already committed to a new property purchase.
- Tax Clearance: The non-resident tax only estimates the actual tax obligation. It may take months to receive tax clearance from the CRA, which can delay the release of the holdback funds.
- Withholding on Improvements: Non-residents may also face a holdback on any improvements made to the property. That can be challenging if 25% of the improvement cost is higher than the actual gain on the property.
- Non-Compliance Penalties: Failure to comply with non-resident holdback requirements can result in penalties, interest charges and legal action.
How Do Real Estate Lawyers Help Non-Resident Sellers?
Working with an experienced lawyer familiar with non-resident holdbacks’ intricacies is crucial. They help you navigate the process and comply with all legal requirements.
Here are some ways a real estate lawyer can assist you:
- Obtaining a Clearance Certificate. Lawyers help you obtain a clearance certificate from the CRA. This document confirms that all taxes have been paid, and the remaining funds can be released.
- Providing an Undertaking. If you cannot obtain a clearance certificate, a real estate lawyer can help you provide an undertaking to pay any outstanding taxes within a specified period. This undertaking will reduce the number of non-resident holdbacks.
- Ensuring Compliance. A real estate lawyer can ensure you comply with all legal requirements and submit the non-resident holdback to the CRA within 30 days of the sale.
They can also advise you on any tax implications of the sale and help you understand your rights and obligations as a non-resident seller.
Trust the Real Estate Lawyers at One80 Law Group
The real estate lawyers at One80 Law Group are skilled in supporting non-residents selling property in Alberta, British Columbia and Ontario. With our 100% virtual services and secure legal signing, you can close your transaction confidently, knowing every detail is in capable hands.
Ready to make your sale stress-free? Complete our contact form to get started.