# Buying property in Canada?



## Frank (Apr 13, 2006)

Not a timeshare question, but looking for advice--I'm considering buying a cottage at NEW LONDON, Prince Edward Island C0B 1N0  Anne's Land
which my realtor claims is red-hot and does great for rentals.  Any advice about this area and/or practical suggestions for Americans buying in Canada?
Thanks so much.


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## EvelynK72 (Apr 13, 2006)

Are you buying this to rent only or will you be using it? Rentals may be red-hot but check to see if that red-hot period is summers only.  I visited the island during the summer and it was quite beautiful.  I remember this one resort that consisted of cottages staggered up on a hillside.  The owners indicated that the lower 3 buildings had steel beams in the roof because in the winter, these cottages were covered with snow!!  A good friend lives on PEI and she said that winters are long and there is lots of snow.  Don't know how good the rental season would be at that time of the year. 

Good luck.
Evelyn


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## caribbeansun (Apr 14, 2006)

PEI is a summer vacation destination - winter on the other hand is not so popular.

*Non-residents Investing in Canadian Real Estate Property*

Canada Customs and Revenue Agency (CCRA) imposes certain obligations on non-residents of Canada with respect to the reporting of both rental income and the gains realized on the disposition of real property within Canada. In general, a non-resident of Canada who owns Canadian real estate is subject to Canadian withholding tax on any rental income as well as on the gain realized on disposition of Canadian real estate. The following briefly outlines some of these implications and is meant as general guidance only, as each situation will be somewhat different. 

*Rental Income*

A non-resident owner of Canadian rental property must have an agent in Canada who receives the rental income and remits the appropriate withholding tax. A non-resident who owns Canadian rental property is subject to a 25% withholding tax on the gross rents which should be remitted by the Canadian agent of the owner. However, these withholding tax payments can be reduced or even eliminated if the non-resident owner files a special form (NR6) which enables the withholding tax to be calculated on the estimated net rental income (after normal operating expenses) rather than on the gross rental income. This form is an undertaking by the non-resident owner and the agent to file a Canadian income tax return in respect of the Canadian rental property or properties. This special income tax return is referred to as a Section 216 Return.

Both the NR6 form and the Section 216 income tax return must be filed annually. The NR6 form must be filed before 31 December for the following calendar year.

*Gains from Disposals*

There is also a compliance requirement on the disposition of Canadian real property owned by a non-resident. The non-resident vendor must inform the Canadian government of the sale within 10 days of the closing or face a penalty. In addition, because the purchaser of the Canadian real estate property is also liable for any Canadian income taxes owed by the non-resident vendor, that purchaser is required to withhold 25%-50% of the gross proceeds of sale and remit them to the Canada Customs and Revenue Agency

(CCRA) on behalf of the non-resident owner. To avoid this withholding, the non-resident owner can file an election requesting a Compliance Certificate enabling the withholding tax to be limited to the tax on the actual gain which will be realized from the disposition. Because of the mechanics of the calculation on the withholding, the non-resident owner should receive a partial refund of the withheld Canadian tax when he or she files a Canadian income tax return for the year in which the disposal occurred. This is certainly true if the gain on the sale of the real estate property is sheltered from income tax in Canada under an international income tax treaty between Canada and the country of residence of the non-resident vendor.

If Canadian rental activity is liable to be significant, it is often carried on through a Canadian corporation which would be subject to Canadian corporate income taxes on its net income. However, if the Canadian corporation is properly structured and financed, the income can be reduced by interest expense on financing as well as management fees which may be subject to lower withholding tax rates under international tax treaties.   If this is of interest you can do this through an NSULC which is a Canadian flow-through entity for tax purposes.

*Goods and Services Tax (GST)*

GST is Canada's value-added tax at 7% and applies to all sales of goods and services unless specifically exempted. This would include the purchase of a real estate property and the rental income earned by the property, except that used residential property, other than such property intended to be used for short-term rentals of less than 30 days, is exempt from GST. If the property is going to be subject to GST because it is going to be used in a commercial activity (i.e., short-term rentals), then the purchaser should register for GST prior to the acquisition. This way the registered purchaser becomes liable for the GST but he can also claim offsetting input tax credits so that the net remittance for GST on the purchase is Nil; and any GST collected on short-term rents may be offset by any GST paid on taxable purchases to provide the rental accommodation. GST returns must be filed on a timely basis to remit any net tax owing or to claim any net refund.

There are many intricacies in the Excise Tax Act dealing with the GST. A non-resident registrant may be required to post a security deposit, if the amounts of GST that he or she will collect in trust for the Canadian government will be significant. There are also special rebates which may be available to recover a portion of the GST paid for the purchase of a Canadian real estate property.

Obviously, every situation is unique and I'd strongly recommend that you get professional advice from a Canadian tax accountant that specializes in non-resident ownership issues.


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## charford (Apr 14, 2006)

Another factor to consider would be currency fluctuations. The Canadian dollar is close to a 15 year high compared to the U.S. dollar (about 87 cents). Not too long ago, it was close to 65 cents. If you need to sell, could you take a hit from a low Canadian dollar?

Cathy


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## jef (Apr 14, 2006)

PEI may also have restrictions on non resident purchases and/or higher property taxes for non resident owners.

The demand for recreational property everywhere in North America is red hot and there have been some huge increases across the board particularly in coastal area's. However, PEI has a very short tourist season and I would think that you would have 8-12 weeks a year of high rental demand (part of June, July, August and part of September) some demand in the shoulder season (Spring/Fall) and little demand in the winter although you may be able to rent it for 6-7 months through the winter to a permanent resident at a nominal rent to cover the taxes and util's if it isn't in too isolated an area.


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## Frank (Apr 14, 2006)

Thank you all so much for the replies...very helpful!


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## asp (Apr 15, 2006)

Reports I heard this morning were that the financial community is mixed on the relationship of the US - CDN dollar.  About half feel the CDN dollar will go up, while half feel it will go down.  It is extrememly unlikely that the dollar will fall to .65 in virtually all of the world economist opinions.  

The CDN economy is very strongly resourced based, with large oil and gas reserves, and has a strong balance of trade with the US.  The federal government is not likely to run large deficits, and most provincial economies have their deficits controlled or eliminated.  It is likely, from what I understand from the various opinions, that as the interest rates rise in the US, and the interest rates rise more slowly in Canada, that the CDN dollar may fall slightly in the short run, but not long run.   But, of course, no one knows for sure!


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## hvsteve1 (Apr 15, 2006)

When we were on PEI a few years ago, and the Canadian dollar was 65 cents, it was like vacationing with play money. We loved the place and saw ads for vacation homes which were really cheap considering the dollar. I recall two things when I looked into it (just for kicks). The government web site had some strict rules regarding foreign ownership. The other was the locals telling me that there are parts of the winter where nobody in the rural areas even tries to leave the house. As with most of flat as a board with no ski areas to attract visitors Maritime Canada...you better make all your money in three months, especially on PEI where the main atraction is _beaches._


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## colden (Apr 23, 2006)

My wife and I purchased an acre +  Atlantic oceanfront building lot in a development with a beautiful 2 mile long sandy beach in Nova Scotia's Halifax area about an hour from the airport.  We bought it when the US$ = $1.55 Canadian. To answer one inquiry, my prediction is the Canadian dollar or "loonie" will surpass the US dollar before 2008.  It's happened before and the time is right for it to happen again.  Long term it looks that way from here.

I appreciated the brief disclosure on the intricacies and tax implications of real estate sales transactions, but all I can say from experience is that buying is a no brainer.  Selling?  Taxes?  I wish the writer dumbed it down for mere mortals 

PEI is beautiful, but I prefer Nova Scotia's Eastern Shore.  Winter is winter of course, but I think you'll find it much more severe in PEI than the Eastern Shore.

BTW, we have not built a house on the land.  If anyone wants to tackle that...let me hear from you.


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## caribbeansun (Apr 28, 2006)

Okay - if you sell, you will pay tax to the Canadian government.  Unless you use an accountant with both Canadian and US knowledge you'll pay way more than you need to.



			
				colden said:
			
		

> I appreciated the brief disclosure on the intricacies and tax implications of real estate sales transactions, but all I can say from experience is that buying is a no brainer.  Selling?  Taxes?  I wish the writer dumbed it down for mere mortals


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## Smooth Air (Apr 28, 2006)

You shd visit PEI b/f buying. A few years ago we almost bought "sight unseen" ( I guess that cld also be "site unseen" ) The Seller had emailed pix of the property. It appeared to be direcctly on the ocean. However, when we actually went to see it we were shocked to learn that it was not on the ocean at all. The pix were very misleading! Needless to say, we did not proceed w/ the purchase. Other things for you to consider:
1. Who will take care of the property during the long cold winters when you are not renting it? The roof will have to be shovelled to clear the snow on a regular basis. Also, if you have hardwood floors you may also have to heat the place so as to avoid warping. Somebody also has to ensure that the water pipes do not freeze & burst. This happened to a friend....heat was turned off. Pipes froze, burst & all the hardwood floors were ruined. Awful mess.

2. You are really only talking 2 months of rental income on PEI....July & August. 

3. Other things like phone, cable/ satellite,....will you have to pay for these year round or can you put these services on "vacation hold"? I know of one satellite company ( Bell Expressvu) in Canada where you are only permitted to put services on a "6 month" vacation stop. When the 6 month period expires, your service is automatically re-connected & you are billed. Then you have to call them ( you will be put "on hold" forever) & instruct them to put you back on Vacation Stop. Then you have to call them a 3rd time to reconnect when you or your tenenats will be using the service. A major hassle.  

Let us know what you decide to do!


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## colden (Apr 28, 2006)

caribbeansun said:
			
		

> Okay - if you sell, you will pay tax to the Canadian government.  Unless you use an accountant with both Canadian and US knowledge you'll pay way more than you need to.



Where do you find such an accountant?  We're not close to selling, but eventually that would be useful info.  My understanding is taxes are higher in Canada.


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## caribbeansun (Apr 29, 2006)

Your safest bet would be to use one of the larger international firms ie. KPMG, Deloittes, Ernst & Young, PricewaterhouseCoopers.  Alternatively there are mid-sized firms in Canada that could handle this as well such as BDO Dunwoody or Doane Raymond - there are others but they aren't as reliable.


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## Breezyone (May 3, 2006)

Most of what people have said on this thread is true, the Canadian Revenue Agency website is great! I actually am an officer in personal taxation and work for CRA but I don't deal with purchasing of properties. I have friends from California that we met when they called us to cut the grass (we have a landscaping business) and now we look after their property here in Prince Edward Island where I live. It is a money pit they really got taken by the real estate company and are in a legal battle right now. They bought their property sight unseen and we are looking after in the winter months. I own a cottage called Angela's Cottage by the Sea on the south shore with a panoramic view of the Confederation Bridge. I have lived here since 1966 and love it here, the winters can be rough. Last summer, I was only able to rent my cottage 4 weeks for 700.00 including GST per week and it is a beautiful property. To rent your cottage you must belong to the Tourist association and pay dues and there are many rules and regulations. We have a lot of 5 star qualities but without a paved driveway, the best we could get was a 2.5 star rating. Our season is so short, and the community where my cottage is gets closed down in November and doesn't reopen until May. So, I definitely didn't make any money last year. With the increase in the Canadian Dollar, I doubt it if I will do any better this year. I live 20 minutes away from it so we use it ourselves when it is not rented. We do actually have a decent ski hill and it is not mountainous but we do have a very hilly island, many people compare our island in the summer to Ireland but you are right there isn't much to do in the Winter. Good luck to you and if there is anything I can do, I will be glad to help you, email me directly.


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