Buying Process
Buying property in Canada is relatively easy and there are few restrictions to foreign ownership.
From a residency point of view, if you plan to stay in Canada for 6 months or less each year, the government considers you a non-resident. If you plan to live in Canada for more than 6 months per year, you must apply for immigrant status.
You should also check that while the majority of Provinces (British Columbia, Ontario, Quebec, Nova Scotia, Newfoundland, New Brunswick) have no restrictions on foreign ownership of real estate in Canada, some do limit the amount of property/land that a non-resident can purchase. For example regard the following
- Prince Edward Island – non-resident buyers must apply to the Island Regulatory and Appeals Commission for land over 5 acres in size, or land with a shore frontage greater than 165 feet
- Manitoba – non-residents are prevented from owning farmland unless they actually plan to move there within 2 years
- Saskatchewan – non-residents may not own land over 10 acres in size
- Alberta – non-residents may only own up to 2 plots of land not exceeding 20 acres in total
Taxation Issues
- Capital Gains Tax – when a non-resident sells Canadian real estate, he/she is required to pay the appropriate amount of taxes on any capital gain. The normal Canadian tax rates will be applied to 50% of the gain. Capital Gains Tax, essentially a profits tax, in Canada applies to residents and non-residents. In Canada 50% of the gain is taxed at the marginal tax rate and the balance is charged at the top marginal tax rate of 46.9%
- Inheritance Tax – In Canada there is no Inheritance tax
- Succession Tax – Succession Taxes like Inheritance taxes mentioned above are taxes that relate to the transfer, upon death, of assets from spouse to spouse and to children. They are generally referred to as ‘Probate Fees’. In Canada the only tax relating to succession and probate is 1.4% of that portion of an estate in excess of Cdn$50,000 of value, and 0.6% for that portion of an estate valued between Cdn$25,000 and Cdn50,000. Succession Taxes in Canada apply only on the net value of the estate. Therefore, the estate value that is taxed is the value less any mortgages on the property
Solutions to tax issues
- Trust Structure – a trust can be created to hold property for the benefit of Beneficiaries with provisions providing for the distribution of the property on the Settlor’s death. Because the property is owned by the trust, it is not considered part of the Settlor’s estate, and is therefore not subject to probate fees
- Corporation and Joint Tenancy – When assets are held in ‘Joint Tenancy’ they pass automatically, and without fee, to the joint party (often but not always a spouse). This is the main defence against probate when dealing with real estate in Canada
Investment Potential
Canada has a well established real estate market where investor returns are generally cyclical and are a direct reflection of the underlying economic growth trends countrywide.
Purely from a portfolio point of view, Canadian property assets traditionally return value increases at least in line with inflation over the long term and with strong short term gains achievable depending on the position of the property market cycle. An investor could even look to work the residential property market to beat trends by buying into the fastest growing geographic regions during a market upswing before that particular region peaks. The investor could then cash in by flipping assets before the given geographic market hit a period of stagnation or depreciation. During the latest positive market movements property investors working in this way have benefited from annual gains in excess of 20% in certain regions.
In general, Canada has three added bonuses for real estate investors that are worth considering
- Canada attracts high numbers of wealthy expatriates who either seek residence in Canada for retirement or to take up key employment positions under the Canadian Immigration Department’s skilled worker programmes. These immigrants seek properties for rent and resale and bring a constant flow of ‘new’ money into the Canadian property market which adds to the sustainability of the Canadian real estate sector and actually creates an investment focus in the cities and areas most popular with this group of people
- Canada has emerging markets within its markets. Politically and economically the country has gone from strength to strength and is generally regarded as a safe and neutral country. As a result there has been widespread growth in the commercial sectors and has actually led to the physical expansion of many cities which have created developing residential and commercial real estate sectors of their own. A property investor could therefore look to target his investment on any one of Canada’s developing cities and either buy into buy to let residential or commercial property units which could include industrial or office space or retail units as well.
- Canada has an already well established but gradually expanding tourist sector that is creeping further inland and further north opening up opportunities to target second home markets and tourist accommodation markets in more towns in Canada than ever before.
Healthy gains in the Canadian real estate market have proven to be consistently achievable with careful investment; this, added to the fact that Canada is a very popular retirement and relocation destination means that the property sector offers investors a wealth of ongoing opportunity.
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