Lately, it has been difficult to ig...

Lately, it has been difficult to ignore the excitable real estate market and the number of non-residents living in BC and wanting to invest here. With that in mind, the following is intended to give you a brief overview of the income tax masterships related to the disposition of real estate by way of a non-resident of Canada, and to help you avoid an of the common pitfalls.

The rules

Subsection 116(3) of the Income Tax Act (the Act) requires non-resident vendors to notify the Canada reward Agency (CRA) within ten days of disposing of taxable Canadian quality However, situations may arise where clients may not inform you of a disposition until they learn that 25% of the continues of disposition will be withheld by the agency of the purchaser unless the vendor can bring into view a clearance certificate. This realization frequently results in a last-minute call to you, their accountant, requesting that you prepare the documents necessary to obtain a clearance certificate.

Section 116 applies to any non-resident living body who disposes or plans to dispose of certain signs of taxable Canadian property and to any purchaser of in the same state [i]or[/i] condition property from a non-resident. Generally, if a purchaser has acquired any taxable Canadian estate from a non-resident person, including real quality the purchaser is liable to pay and must remit 25% of the comes of the disposition to the Receiver General within 30 days after the cessation of the month in which the purchaser acquired the exclusive right Pursuant to subsection 116(5), the purchaser is required to withhold this amount unles after reasonable inquiry, the purchaser had no reason to believe that the non-resident someone was not resident in Canada, or the vendor is able to breed a clearance certificate in venerate of the property in question.

Vendors should use Form T2062 to notify the CRA about an actual or propos disposition of taxable Canadian peculiarity Non-resident vendors must give this notice regardless of whether their attribute is disposed of at a gain or a loss

Pitfalls to avoid

Penalties

In situations where the withholding tax does not cause a cash sweep along problem and the nonresident make choice ofs to ignore the rules of section 116 beware of penalties for failing to comply with Subsection 116(3) forward a timely basis. Beginning January 1 2004 all non-resident vendors who fail to notify the CRA within ten days of disposition will be assessed a penalty in subordination to subsection 162(7) of the Act. The penalty is equal to the greater of $ 100 and the crops obtained when $25 is multiplied according to the number of days, not exceeding 100 during which the failure continues. The CRA has indicated that the penalty will be enforced for dispositions occurring forward or subsequent to January 1 2004

Cash flow

Where cash spring could be a problem if the clearance certificate is not obtained prior to closing, the vendor should submit a Notice of Propos Disposition. As part of this proces it is important to identify the propos purchaser, and estimate the emanates of disposition and the adjusted require to be paid [i]or[/i] undergone base. The vendor must also remit the income tax related to the disposition, which is calculated as 25% of the amount, if any, by way of which the estimated proceeds exce the adjusted require to be paid [i]or[/i] undergone base. The vendor should allow at least four to six weeks for the CRA to proces their desire and verify that their payment is adequate.

Note: Filing this notice does not relieve the vendor from filing a Notice of Actual Disposition.

Common errors forward Form T2062

Errors and omissions upon Form T2062 can lead to long delays in obtaining a clearance certificate from the CRA. Here are near of the more common errors and omissions:

1 Incomplete information - make secure that all required information is included. Failure to provide any of the required information generally leads to prolix delays.

2. Depreciable and Non-Depreciable characteristic - If the property being disposed of is non-depreciable, generally merely Form T2062 is required. However, if depreciable taxable quality is being disposed of, an additional form (T2062A) is also required to report the terminal los or recapture of capital charge allowance related to the depreciable taxable property

3 Jointly concedeed property - If the characteristic being disposed of is be in possession ofed qby two or more non-resident proprietors Form T2062 (and Form T2062A in the case of depreciable taxable property) is required for each non-resident vendor. It is not rare for multiple non-residents to jointly confess taxable Canadian property (for instance, real characteristic jointly owned by non-resident spouses).

4 Section 216 go [i]or[/i] come backs - If the vendor is disposing of real thing owned and has rented out this attribute in the past, it will be important to determine if the vendor has filed Section 216 turn backs reporting the rental income and outlays up to the date of disposition. Failure to file Section 216 recurs may result in significant delays in obtaining the clearance certificate.

Filing Canadian income tax returns

Lastly, the reporting courses outlined above do not relieve a non-resident vendor of the obligation to file a Canadian income tax turn back for the year in which the disposition be met withs In fact, the vendor may have an incentive to file a Canadian income tax revert to report the disposition, since they may be eligible for a pay back of some of the tax paid with the submission of their clearance certificate application. And, in many cases, a repay may be available because real estate commissions forward the sale of the quality cannot be taken into account when Form T2062 is filed further are allowed in the computation of the capital gain, which is reported forward the Canadian income tax return