Before purchasing and owning a real estate property in Canada, you should understand the tax laws applied to Canadian real estate.
Residency or citizenship is not a major requirement for purchasing and owning property in Canada. Non-residents can purchase and own real estate property in Canada, but they will have to file an annual tax returns with the Canada Revenue Agency (CRA).
You can be a temporary resident but if you want to extend your stay or reside permanently, you have to comply with the immigration laws and satisfy the requirements needed.
Some tax laws involved in Canadian real estate are;
#1. Taxes on Property
When purchasing a property in Canada, you have to pay a transfer tax based on province. This tax varies from province to province, but should be around 1-2%. There are exceptions if it is your first time purchasing real estate property in Canada.
Annual property taxes which includes school and other taxes are also levied on purchasers. This is based on the property value and how it reflects on the market value. You can get information on the current property taxes on the particular property you want to purchase.
#2. Taxes on Rental Property
According to The Canadian Income Tax Act, 25% of the gross property rental income is required to be remitted every year. However, non-residents in Canada can decide to pay 25% of the net rental income (after expenses) by completing an NR6 form. If the rental property incurs net losses, then you may recover previously paid taxes. Your income will be handled differently but this will depend on whether you’re a partner or a co-owner of the property and whether the income is a business or rental income.
If you want to earn more rental income, you can deduct two types of incurred expenses. These are, the current operating expenses and the capital expenses which gives a longer-term profit.
After purchasing a rental property in Canada, the cost or amount spent on furniture and other property equipment cannot be deducted from your rental income for that year.
However, the cost can be deducted overtime, this is simply because such furniture items depreciate and reduce in quality or value. This deduction from your rental income is known as the capital cost allowance (CCA).
Canadian laws are quite flexible and unbiased in owning a real estate property. You don’t have to be a Canadian resident or citizen before owning a property and the property taxes and incurred interests are deductible.
To gain profit in Canadian real estate, you should understand that there are many tax deductions at every stage of the real estate investment starting from purchasing the property, owning the property, occupying or renting it and then, finally selling it.
The real estate laws of Canada are contained in the Canadian Income Tax Act and the Canada Revenue Agency (CRA)
Invest wisely; purchase a real estate property in Canada today.