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Please note that the comments contained on
this page are for information purposes only and do not constitute
legal advice.
Buying Property in Canada
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.
Property 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).
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 7% is only payable
on newly constructed homes and is often included in the quoted sales
price. New home buyers can apply for a 2.52% rebate of the 7% GST
applicable on the purchase price. 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.
Provincial Sales Tax (PST) ranges from 0-10% and
again, is normally included in the quoted sale price.
Property Tax is an annual fee levied within local
communities, which means there are many different rates within each
Province. Generally it falls between 0.5-2.5% of the home's market
value.
Realtor's Fees are paid by the vendor and are negotiable
between 3 and 7% of the home's market value.
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.
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 $150-$400.
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 $230,000, expect to pay approximately $200 per month (this varies
from building to building). |
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