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Buying Property in Canada

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The bottom line is that buying real estate in Canada is very easy.

From a residency point of view, if you plan to stay in Canada for 6 months or less each year, the government considers you a non-resident, which means that you can still open a bank account and buy property, etc. If you plan to live in Canada for more than 6 months per year, you must apply for immigrant status.

It is important to note, however, that while the majority of Provinces (British Columbia, Ontario, Quebec, Nova Scotia, Newfoundland, New Brunswick) have no restrictions on foreign ownership of real estate in Canada, some do limit the amount of property/land that a non-resident can purchase. On Prince Edward Island, non-resident buyers must apply to the Island Regulatory and Appeals Commission for land over 5 acres in size, or land with a shore frontage greater than 165 feet. In Manitoba, non-residents are prevented from owning farmland unless they actually plan to move there within 2 years. Non-residents may not own land over 10 acres in size in Saskatchewan, whilst in Alberta they may only own up to 2 plots of land not exceeding 20 acres in total.

Once you have chosen a realtor, secured a mortgage and found your property, an offer is made and once accepted, a deposit is payable. When buying a house in Canada, an offer must be made in writing so that all aspects of the transaction are clearly outlined within the offer. Once you (the buyer) have signed the document, it becomes legally binding. If you withdraw from the offer at this stage, you may lose your deposit and may also be sued. Make sure that every item staying in the property, eg. carpets, fixtures and appliances, is written on the offer as 'chattels included'. Your realtor should also insert two clauses stating that the offer will only proceed subject to building inspection and that you as the buyer are able to meet your financial obligations. Once your offer is complete it will be presented to the seller and negotiations are made. This may include changes in price, completion date and chattels. The changes are initialled by the seller and returned to you (the buyer) for your initials. The resulting Agreement of Purchase and Sale will state the purchase price and the deposit. The deposit is placed in a trust account and is credited towards the purchase price once the offer has been accepted by both the seller and the buyer and the transaction is complete.

Most realtors are self-employed and are on negotiable rather than fixed commission (payable by the seller). A purchaser can buy property using any realtor, regardless of whether that realtor originally listed the property. There are usually 2 realtors involved in a sale - the seller's agent and the buyer's agent. The commission received upon the sale of the property is divided between the 2 realtors. Some agents can also be dual agents but must declare this to buyers and sellers alike.

Mortgage

As a Canadian resident, financing is typically available at 75% of the purchase price for a primary residence over a 25-year term. For a non-resident, the ratio is generally 65% mortgage and 35% as a down payment. Qualifying for the mortgage financing is probably the same as in other countries - interviews via phone, fax, e-mail to gather personal information which includes assets/liabilities, employment and/or income information. Each borrower's application will be considered on a case-by-case basis. Your realtor will be able to advise you on suitable mortgage brokers.

The mortgage approval may take approximately 24-48 hours after application and documentation has been submitted to the lender. The documentation generally required is income verification, tax returns, credit bureau or bank's report (letter from borrower's own bank stating that all accounts are in good standing to date), down payment confirmation via bank statements, copy of 2 pieces of ID and real estate appraisal. Foreign banks cannot register mortgages in Canada, so any mortgage would have to be raised via a Canadian mortgage broker. (Please see 'Transferring Funds' for more information).

The borrower will require the services of a Canadian lawyer or notary public to prepare the mortgage documents and registration at the Land Titles office. Documents can be couriered outside Canada for signing - this will need to be arranged with the lawyer and lender well in advance of the completion date.

Selling Property in Canada

When a non-resident sells Canadian real estate, he/she is required to pay the appropriate amount of taxes on any capital gain. The normal Canadian tax rates will be applied to 50% of the gain. However, a non-resident is required to pay an estimate of the tax before the sale, an amount equal to 25% of the gain. This amount is to be retained by the seller's lawyer until such time as a clearance certificate is received from the Canada Revenue Agency (CRA) in connection with the sale of the property. Upon payment, the CRA will issue a clearance certificate to the seller, but not until there has been a contract of purchase and sale with all subjects (conditions) removed. The wait for the certificate is usually 6-8 weeks. If the certificate is not obtained, the purchaser is required to withhold from the sale proceeds, a percentage of the selling price (usually 25-50%).

On or before the closing date, the mortgage money is transferred to the seller's lawyer and then to the seller and the title is transferred to the buyer's name.

The non-resident seller should file a Canadian income tax return for the year in which the sale occurs and should expect to receive a refund of a portion of the taxes paid. The taxation of Canadian real estate depends on whether the use of the property is for a principal residence, an active business or as a rental property. If it is used as a rental property, a 25% non-resident tax must be paid on the gross rent a tenant pays. However, if you use a professional property manager, the manager will, by law, withhold 25% of the gross rental revenue at source to be remitted to the Canada Revenue Agency. Then on or before March 31 of the following year, the property manager issues an NR4 form and you then have the right to file a Canadian tax return. The tax return is due before June 30 and enables you to claim expenses against that income and potentially request a refund.

Many countries, such as the U.S., have tax treaties with Canada that prevent you from being taxed in both Canada and your home country. It is advisable to contact a tax accountant in your country for more information.

Additional Costs and Fees when Buying and Selling Property

The following represents many of the additional costs and fees incorporated when buying property. Your realtor will be able to let you know which are applicable in your Province.

Taxes

Non-residents of Canada pay tax on income received from sources in Canada. The type of tax paid, and the requirement to file income tax returns, depends on the type of income received.

Canada has tax treaties with many countries, including the United States and the UK. A tax treaty is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries.

Property Transfer (or Purchase) Tax / Land Transfer Fees are calculated between 0.5-2% of the property's total value (not applicable in Alberta, rural Nova Scotia or Saskatchewan). They are generally 1% of the first $200,000 of the value and 2% of the remainder.

Since the 2005 Provincial Budget, Property Transfer Tax (PTT) is now exempt for individuals buying their first home as long as they meet certain criteria, namely that they are a Canadian citizen or Permanent Resident and have never owned a home anywhere in the world; that they have lived in the province for at least one year prior to purchase; that they have filed two Canadian tax returns within the last six years; and that they must occupy the property as their principal residence for the first year of ownership. There are also proportional exemptions to PTT for first-time home buyers which vary by region based on the fair market value of the property.

As of December 2007, the Ontario Provincial Land Transfer Tax exemption for first time buyers (up to $2,000) now applies to resale as well as newly constructed homes. Similarly, from February 2008, Toronto (and this may spread to other provincial cities) has its own Land Transfer Tax which allows first time home buyers of both new and resale homes to qualify for a rebate.

If the property is vacant land, the house must be constructed within one year of closing and the buyer must live in the house for the balance of the year.

There are other criteria needed as well to qualify for the PTT exemption, so it is best to consult a lawyer or notary.

Clearance Certificate The typical fees associated with preparing and filing a clearance certificate, paid by the seller, range from $300-$1000, depending on the complexity of the transaction.

Capital Gains Tax is not applicable on your principal residence.

Goods and Services Tax (GST) of 5% is only payable on newly constructed homes and is often included in the quoted sales price. New home buyers of residences costing $350,000 or less can apply for a partial rebate of the 5% GST applicable on the purchase price as long as the home is going to be the purchaser's primary place of residence.

For new homes priced between $350,000 and $450,000 before GST, the GST rebate reduces proportionately. New homes priced $450,000 before GST or higher do not receive a rebate. There is no GST on resale housing unless the home has been substantially renovated, and then the tax is applied as if it were a new home.

GST questions are best answered at source ie: the Revenue Canada website, or by an accountant who is familiar with real estate revenue taxation.

Provincial Sales Tax (PST) ranges from 0-10% and again, is normally included in the quoted sale price.

Harmonized Sales Tax (HST) is a combination of GST and PST and is used in British Columbia, Ontario, and the Atlantic provinces of New Brunswick, Newfoundland and Labrador, and Nova Scotia. The HST is collected by the Canada Revenue Agency, which then remits the appropriate amounts to the participating provinces. Every province except Alberta has implemented either a provincial sales tax or the Harmonized Sales Tax. The territories of Yukon, Northwest Territories, and Nunavut do not have either the HST or territorial sales taxes. Only the GST is collected. The three northern jurisdictions are heavily subsidized by the federal government, and its residents receive some additional tax concessions due to the high cost of living in the north. HST is applicable on most goods, services and consumer products including new homes. Rebates are given for the construction or purchase of most newly constructed or substantially renovated houses used as a primary place of residence. HST is also applicable to any costs and fees associated with the property purchase including legal/notary fees, realtor commissions, strata fees, residential heating fuel, commercial rents, smoke detectors, fire extinguishers, repairs, cable TV, internet, electricity, gas, renovations, painting and other professional services.

Property Tax is an annual fee levied within local communities, which means there are many different rates within each province. The difference between Property Tax and Property Transfer Tax is that PTT is a one-time provincial tax which comes into effect upon transfer of property and Property Tax is paid annually to the local taxation authorities. It is determined by applying the value of the property as assessed by the provincial assessment authority to the current tax rates as stated by the local tax authority. The amount can differ each year but generally Property Tax falls between 0.5-2.5% of the home's market value.

Other Expenses

Realtor's Fees are paid by the vendor and are negotiable between 3 and 7% of the home's market value. As a rule of thumb, Realtors often charge 7% on the first $100,000 of the sale price and 3% on the remainder. GST of 5% is also applied to the Realtor's commission and is payable by the vendor.

Appraisal Fee Your lender may require a property appraisal at your expense. The cost is between $150-$250.

Survey Fee Your lender will require an up-to-date survey. If the Seller does not have one, you will have to pay to have one done. This can be approximately $150-$350.

Lawyer's Fees Lawyers review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. The fee will be approximately $500-$800. This amount varies between Provinces depending on the complexity of the sale and the type of property.

Home Inspection Fee is usually around $450. This is the equivalent of a survey in the UK and other countries and is carried out at the purchaser's request.

Property Insurance which covers the replacement value of the structure of your home and its contents.

Service Charges can be in the region of $35-$50 to hook up new services and utilities.

Condominium (Strata) Fees are charged monthly and cover building insurance and maintenance. The building’s property manager will provide you with the fee.  For a newly built condo worth $250,000, expect to pay approximately $200 per month (this varies from building to building).

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