In recent years we have seen a surge in worldwide interest towards buying property in Canada, with real estate investors lining up to purchase homes and condos in Canada’s major cities. This guide summarizes some of the key points.
HOW TO BUY PROPERTY IN CANADA
Can foreigners buy real estate in Canada?
Absolutely! You can buy property in Canada no matter what your citizenship, or where you currently live, and there are no restrictions on the amount, or kind of real estate you can buy. Now here’s what you need to know – while Canada does welcome foreign investors, there are many rules and regulations that make ownership somewhat tougher to achieve than that for Canadian resident citizens. The most significant barrier has been the implementation of a 15% Non-Resident Speculation Tax in both Vancouver and Toronto. This is a significant tax that must be paid by foreign citizens and non-permanent residents (including corporations and trusts) when purchasing real estate in both the greater Toronto and Vancouver areas. The areas where the tax is in effect include much of greater Vancouver and the lower mainland, and much of greater Toronto in a wide area from Niagara Falls, to Hamilton, Oakville, Mississauga, and points east all the way to Peterborough. Further details can be found here.
I want to immigrate to Canada. Will buying a property help me to get accepted?
Immigrating to Canada is a complicated process and, unfortunately, owning property is not one of the factors taken into consideration for acceptance. Nevertheless, owning real estate in Canada certainly won’t hurt your chances and will be considered part of your overall net worth. If you are wondering if you’d be eligible to immigrate to Canada, visit the Government of Canada Citizenship and Immigration website.
I’m a Canadian citizen living in a different country. Am I considered a non-resident for the purposes of buying real estate if I’m an expat?
Citizens of Canada who don’t reside in Canada for more than half the year are considered non-residents (and thus subject to non-resident rules).
I’m a non-resident and want to purchase a property in Canada with a resident. How will that be treated?
If you buy a property with a resident, you will still be treated as a non-resident and thus subject to the same requirements, including a higher downpayment. If you are purchasing with a spouse who is a permanent Canadian resident, you are not generally subject to the Non-Resident Speculation Tax.
GETTING A MORTGAGE WHEN YOU ARE A NON-RESIDENT
Can a non-resident get a mortgage to purchase a house or condo in Canada?
Yes. Most often, Canadian banks and lenders will require non-residents to have a minimum 35% down payment.
How do I qualify for a mortgage as a non-resident?
To qualify for a mortgage for a property in Canada, non-residents will generally require:
- A 35% downpayment (not from gifted funds)
- A reference letter from their bank
- An employment letter verifying income in Canadian or US dollars
- Three months bank statements
- Canadian credit check
Will I Get the same interest rate as a Canadian borrower?
Non-residents are eligible for the same interest rates as Canadians, provided they meet the mortgage eligibility criteria. If you live in a country that does not have a tax treaty with Canada, you will only be eligible for a fixed-rate interest rate. [See a list of countries that have in-force tax treaties with Canada]
If you don’t meet the eligibility requirements, you may still be able to get financing from other lenders who charge higher interest rates.
How soon does the down payment have to be deposited in a Canadian bank?
Most Canadian banks will require your down payment to be deposited 30 days before the closing of the purchase. Most banks will want to be able to trace the source of your down payment going back 90 days.
What’s a deposit, when do I need it and how do I pay it?
After your offer to purchase a property is accepted, you’ll need to provide a “good faith” deposit – usually around 5% of the purchase price – within 24 hours. That deposit is held in trust by the listing real estate brokerage and it forms part of your down payment. It’s a good idea to open a Canadian bank account and have the deposit funds there when you start house hunting – so when you are required to pay the deposit, it’s easily accessible.
What kinds of closing costs should I expect to pay?
If you are buying in the Toronto or Vancouver areas, as a non-resident, you will be required to pay the 15% Non-Resident Speculation Tax and will be subject to the other regular closing costs, including land transfer taxes and legal fees.
Will I qualify for any government programs?
As a non-resident, you will not qualify for the first-time buyer programs or land tax rebates offered by the Canadian government.
I don’t need a mortgage. How do I pay for the property?
You can buy a property without getting a mortgage if you have 100% of the funds in cash. That money would need to be transferred to your lawyer before closing.
HOME BUYING PROCESS QUESTIONS
Do I need to come to Canada in person to search for a property?
Non-residents can search and find a property to purchase without ever setting foot in Canada. Today’s technology allows you to view photos and videos of most properties for sale in the marketplace. Many non-resident buyers also choose to have a family member or friend living in Canada assist with the home search process. If you are going to need a mortgage, you’ll need to open a Canadian bank account – Canadian banks will require you to come to Canada to do this. Note there are some exceptions to this (for example, investors with HSBC accounts may be able to get a Canadian account opened without coming to Canada).
I want to buy a house. Will I need the services of a home inspector?
It’s always a good idea to utilize the services of a qualified home inspector before firming up your purchase.
If I buy an investment property, are there firms who can help me find tenants for it and manage it for me?
There are many firms in Canada’s major cities who deal in property management, helping you to screen prospective tenants, and manage their tenancy.
LEGAL QUESTIONS FOR NON-RESIDENT BUYERS
Where do I find a lawyer who can help me with the purchase as a non-resident?
Canada’s major cities have many lawyers who specialize in real estate.
How do I sign the offer paperwork?
Once again, today’s technology allows to you sign paperwork without actually being present. You can scan and email the forms, or even utilize e-signatures via a tablet or smartphone.
INSURANCE QUESTIONS FOR NON-RESIDENTS
How do I get insurance as a non-resident? What are the requirements?
It can be tricky to get home insurance if you don’t reside in Canada, but there are many insurance agents who can help you with this.
How much will home insurance cost?
Costs for insurance depending on what property you buy and where it is.
TAXES & CLOSING COSTS
What kinds of taxes will I have to pay?
If you are buying in the Toronto region, there are four kinds of taxes you need to be prepared to pay: the Non-Resident Speculation Tax, the land transfer tax(es), municipal property taxes and income taxes.
The Non-Resident Speculation Tax is equal to 15% of the price of the property and paid upon closing. You can read all the details here.
When you take possession of the property, you will be required to pay the applicable land transfer taxes, which can be significant. Land transfer taxes are based on a sliding scale dependent on the price of the property.
Every year you’ll need to pay municipal property taxes – you can get an estimate on the City of Toronto Property Tax Calculator.
The other taxes you need to be aware of must be paid when the property is sold. In most cases, non-residents are subject to tax on any income or gains resulting from the sale of a taxable Canadian property, including residential homes, condos, vacation properties or land. When a non-Canadian-resident sells a property, the Buyer of the property must withhold and remit a portion of the purchase price to the Canada Revenue Agency (CRA). Generally this amount is 25% of the gross selling price. (Note that the actual tax owing may be different, this is just to make sure the government will get its money by stopping the money from leaving the country until they can determine what is actually owing.)
Alternatively, a Certificate of Compliance related to the sale of the property can be filed and approved by the CRA to reduce or eliminate the withholding taxes. Upon filing of this Certificate of Compliance, the 25% withholding tax required is calculated on the gross sales proceeds net of the purchase cost of the property (or in other words, the net profit).
Also, non-residents are required to file a Canadian tax return by April 30 following the year they sold their property. Generally, upon filing a tax return, part of the withholding tax is refunded to the Seller as the 25% withholding tax is usually a lot higher than the actual taxes owing. At this point, you can also claim expenses like legal fees and commissions against the income from the sale.
What kinds of closing costs can I expect?
Here are the costs you need to be prepared to pay when buying a property in Toronto.
- Deposit (usually 5% of the purchase price in Toronto, paid within 24 hours of your offer being accepted)
- Property Appraisal ($400- $500, occasionally paid by the lender)
- Home Inspection ($400-$600, paid to the home inspection company at the time of the inspection)
- Balance of the Purchase Price – the purchase price less your initial deposit. Usually, the bulk will come from your lender and become your mortgage.
- Legal Fees – amount varies depending on purchase price and lawyer (approximately $1,800 for a $500,000 purchase)
- Title Insurance – sometimes included in your legal fees ($250-$400)
- Mortgage Broker Commission – if applicable
- Property Survey – if required ($1,000-$2,000)
- Non-Resident Speculation Tax – 15% of the purchase price
- Ontario Land Transfer Tax – varies depending on purchase price
- Toronto Land Transfer Tax – varies depending on purchase price
- Property Tax Adjustment – reimbursement to Seller of property taxes were paid beyond the closing date
- HST – generally only applicable on new construction condos and houses, and commercial properties
- Tarion Warranty Fees – warranty on new construction condos and houses only, not resale, (click here to estimate Tarion Fees)
- Provincial Sales Tax – only applicable on chattels purchased from vendor (amount varies)
- Adjustments for Utilities/Condo Fees/etc. – reimbursement to Seller for prepaid utilities, etc.
SELLING PROPERTY IN CANADA
What happens when I want to sell my property?
If you want to sell your property while you’re a non-resident, you’ll want to partner with an agent who has experience helping overseas sellers.
What kinds of taxes will I have to pay when selling the property?
You’ll want to consult an accountant to get a full understanding of the taxes you will need to pay upon selling your property. Generally, you will be taxed on any income and gains in value of the property. The Canadian Government generally withholds 25% of the gross selling price until the appropriate tax forms have been completed. Alternatively, a “Certificate of Compliance” can be completed to prove the appropriate taxes have been paid, which can reduce or eliminate the withholding taxes.
RENTING YOUR PROPERTY
What is involved if I wish to rent out my property?
There are two parts to renting out your property: finding the right tenant and then managing the property. Renting out your property involves setting a price, marketing the property, showing it to potential tenants, screening them, negotiating a lease and securing a deposit. Ongoing property management involves maintaining and repairing the property and maintaining the relationship with the tenant. How much work this involves depends on the type of property you own (for example, there’s a lot more involved in managing a house than a condo!)
What kinds of returns can I expect?
Investors can have different goals: some are concerned with cash flow, others with the appreciation in the value of the property and other investors are more concerned with building equity in the property via the mortgage being paid by the tenant. Generally, most investors break even with a 20% down payment or are slightly cash flow positive. Gross yields average 4.5-6%.