Know About Real Estate Taxation in Canada
Posted: Oct 09, 2013
Real estate tax is based on property valuations which are normally carried out by a central agency for the entire province. All provinces in Canada have their own assessment boards. Real estate’s are assessed at their market value and these valuations are then given to the relevant municipalities who apply the appropriate tax rate to that property. Tax rates are normally determined annually and vary according to the type of real estate (residential, commercial, and industrial).
Real estate tax levy usually includes rates defined by several institutions, and funds from the tax will eventually go to different authorities. A portion of property tax, for example, funds provincial schooling, so several municipal and provincial authorities are involved in setting the combined rate. For this reason, property tax calculations can be complex, and exact rates and modes of calculation differ between municipalities.
Canadian real estate taxes are annual fees levied within local communities, which means there are many different rates within each province. The Provinces have their own right to implement whatever rates they deem fair provided they do not interfere with the Canadian Law. The real estate taxation 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 falls between 0.5-2.5percent of the assessed real estate value.
Owners of real estate in Canada, who are non-residents are liable to pay real estate tax and must apply for a Canadian ITN number if they have not already obtained a Social Insurance Number (SIN.)Non-resident must show significant social ties to Canada or intention to settle in Canada long-term in order to become resident for tax purposes there.
Canadian residents are taxed on their worldwide income similar to Canadian citizens. Nonresidents are taxed only at source on their income from sources within Canada including property rentals and the conduct of a business in Canada and generally must submit a Canadian tax return.
A non resident who sells Canadian real estate will need to request for a certificate of compliance with the CRA agency within 10 days of the closing date. In order to get the certificate of compliance the seller must remit a 25% tax based on the gain of the property. It is advisable to request the compliance certificate prior to the closing date because if the buyer does not see this certificate they have the right to withhold 25% of the Gross Purchase price of the property in trust. The money will only be released upon presentation of the compliance certificate.
At the end of the year a tax return should be completed by the nonresident in Canada to have the opportunity to reduce their taxes payable and get a potential refund by applying the costs associated with the sale of the property to reduce the taxable gain.
Ken Donaldson is a chartered accountant who practices as an independent tax consultant. He also author of real estate tax, in this article he provides real estate taxation tips. For more information you can visit Taxca.com.