Buyer Beware: Non Resident Withholding Tax

Buyer Beware you could be on the hook for a 25% tax on your next purchase.

You might not be aware that there is a 25% withholding tax for non-resident sellers. You might be wondering how does this impact you as a buyer? Here's an example - if the non-resident seller sells their property and is no longer in the country the Revenue Canada Agency or CRA can go after you as a buyer for that 25% tax. I know it's not fair but that's just the way it is in Canada.

Here are three things your real estate lawyer will request from the seller’s real estate lawyer.

1. Statutory Declaration of Canadian Residency

Your lawyer can request a Statutory Declaration that the seller is a resident of Canada. If they can't provide that the second step is to request a Clearance Certificate.

2. Clearance Certificate

A Clearance Certificate states that the non-resident seller has paid the capital gains to Revenue Canada. Now this document takes a bit of time to get from the government, so in most cases they won't be able to provide that.

3. Hold Back of 25% of Purchase Price

The third option or the third step would would be is to hold back 25% of the purchase price. This is designed to protect you from having to come up with that 25% after the transaction is completed and paying that to Revenue Canada.

The next time you are looking for investment property or a home for yourself or your family make sure you ask your real estate agent as well as your real estate lawyer to confirm that the seller is a resident of Canada. It will save you the hassle of having to deal with Revenue Canada and being on the hook for 25% tax on the purchase of that specific property.