You are a non-resident for tax purposes if you:
– Normally, customarily, or routinely live in another country and are not considered a resident of Canada; OR
– Do not have significant residential ties in Canada; AND
– You live outside Canada throughout the tax year; OR
– You stay in Canada for less than 183 days in the tax year.
It is important to consider exchange rates when purchasing assets in Canada. Currently the Canadian Dollar exchanges at approximately $1.00 CAD = $0.75 USD. For accurate, up to date exchange rates for U.S. and other currencies, see https://www.xe.com/currencyconverter/.
Financing options for purchasing property
1. Borrow from one of your home-land assets and bring cash to Canada to purchase. Apart from exchange rates, there are transfer fees. Currency exchange companies like hifx.com offer discounts on transaction fees for currency exchange.
2. Apply for financing with a BC Mortgage Broker.
- Mortgage Broker shops on your behalf with many lenders. Loans in Canada to non-residents are personally guaranteed by the individual(s).
- Mortgage Brokers gets paid by the lender, so it costs nothing to the buyer to work with a mortgage broker.
For Non-Residents applying for financing on a property that will be their second home or vacation property:
- North American applicants can put down payment as low as 20%
- Outside of North America will require 20% – 35%
If you are a Non-Resident and you purchase property in your personal name you will be subject to withholding a portion of your monthly rental income.
Non-Resident Withholding Tax on Rental Income
The CRA (Canada Revenue Agency) requires from non-residents a 25% withholding tax on all gross revenue earned. If the property is owned by the Canadian corporation, this withholding would not apply. Non-Residents have the option to form a BC Corporation to own the corporation (instead of personally) to avoid these withholding taxes. The BC Corporation is considered a resident of Canada.
Forming a British Columbia Corporation
When non-residents purchase property in Canada, it may be beneficial to have the property owned by a Canadian (BC) Corporation, which is of course owned by the non-residents or even a foreign company.
Corporate Income Tax
The Corporation that owns the property will be subject to approx. 29% rate on operating profits. If the corporation sells the property, the effective tax on the Capital Gain would be 14.5 % before any tax loss carry forward deductions (in Canada we can carry forward losses for 20 years.). This is because the corporation would be allowed a 50% exemption on the Capital Gain from the sale. This exempt part of the gain also gets to you (via a capital dividend) with no more tax grabs! As the owner of a corporation, you could reap rewards that are unavailable to those owning the property personally.