Buying Canadian Property as a US Citizen

Buying Canadian Property as a US Citizen

Executive Summary

Canada’s real estate market has become very attractive to foreign buyers in recent years.  Whether you are looking for an investment property or a vacation home, you can look forward to a fairly straightforward process. There are very few limitations on how much and what kind of property that can be purchased by non- residents, but the process is the same no matter what the intended purpose of your purchase is.

What you Need to Know

First Steps

The first step in purchasing a property in Canada is finding a realtor. A realtor will help you navigate available real estate and will act as a liaison between you and the seller.  Your realtor can also recommend and help you coordinate with your lawyer and mortgage broker.  To buy a property in Canada, you will require the services of a Canadian lawyer or notary.  Ideally, you would be in the country to purchase your new property, but this is not always possible. You can purchase property without being in the country, but it is crucial that your realtor, lawyer, and lending institution coordinate well before the time of purchase. This will ensure appropriate timing for all legal and financial documents.

Mortgages

Foreign banks cannot register a mortgage in Canada, therefore prospective buyers must use a Canadian lending institution to finance their purchases. Non-residents can expect to put down at least 35% for a down payment on Canadian property, and may be required to have the funds in a Canadian bank account for at least 30 days before the purchase of your property.   It is also important to note that most Canadian lenders will not recognize a U.S credit score. Be prepared to supply the lending institution with tax returns, income statements, banker reports, and other information that confirms you can sustain your purchase.

Tax Considerations

U.S buyers are subject to the same provincial transfer tax upon purchase as Canadians.  The amount transfer tax you owe varies from province to province. You will also be required to pay a property tax annually, which is your properties assessed value multiplied by the designated tax rate. These rates vary and are typically set by municipal governments.

Recently, some major cities have implemented a foreign buyers tax. Your realtor can help you navigate any potential buyer’s taxes that are unique to some Canadian cities.

Selling Your Property

There are very strict disposition rules for non-resident property owners who are selling their property.  It is mandatory that you notify the CRA about the disposition before the sale, or within 10 days after the sale.  Once the CRA has received the amount owing on any capital gains resulting from the sale, or appropriate security for the tax, they will issue a compliance certificate.  Both the buyer and the seller receive a copy of this document.  If you fail to report your disposition, the purchaser is required to remit a specified amount of money, and is entitled to deduct the amount owing from the purchase price.

Bottom Line

Foreign buyers can expect an uncomplicated process when purchasing Canadian Property. Canada currently offers real estate investment opportunities with few restrictions. It is worth noting that current governments are focused on re-evaluating current housing markets and tax regulations for foreign buyers. It is important to keep regular contact with your lawyer and accountant to stay on top of changing policies.