Overseas Home Buying Process in Canada

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1 Whichever way you find real estate agents, it s always prudent to conduct face-to-face interviews. Narrow your selection down to three, and meet with them to determine their strategy for working with you. As with anything, if you have a good rapport with one, this will be the one to go with. Most realtors are self-employed and are on negotiable rather than fixed commission (payable by the seller). A purchaser can buy property using any realtor, regardless of whether that realtor originally listed the property. There are usually two realtors involved in a sale the seller s agent and the buyer s agent. The commission received upon the sale of the property is divided between the two realtors. Some agents can also be dual agents but must declare this to buyers and sellers alike. Mortgage As a Canadian resident, financing is typically available at 75% of the purchase price for a primary residence over a 25-year term. For non-resident, the ratio is generally 65% mortgage and 35% as a down payment. Qualifying for the mortgage financing is probably the same as in other countries interviews via phone, fax, to gather personal information which includes assets/liabilities, employment and/or income information. Each borrower s application will be considered ono a caseby-case basis. Your realtor will be able to advise you on suitable mortgage brokers. The mortgage approval may take approximately hours after application and documentation has been submitted to the lender. The documentation generally required is income verification, tax returns, credit bureau or bank s report (letter from borrower s own bank stating that all accounts are in good standing to date), down payment information via bank statements, copy of 2 pieces of ID and real estate appraisal. Foreign banks cannot register mortgages in Canada, so any mortgage would have to be raised via a Canadian mortgage broker. The borrower will require the services of a Canadian lawyer or notary public to prepare the mortgage documents and registration at the Land Titles office. Documents can be couriered outside Canada for signing this will need to be arranged with the lawyer and lender well in advance of the completion date. Making an Offer to Purchase Once you have chosen a real estate agent, you need to give the vendor an Agreement of Purchase and Sale (also called an Offer to Purchase). This Agreement states the legal names of both buyers and sellers, the civic address of the property, the price that is being offered for the home, any items in and around the property that are being included in the sale itemized under chattels included, the amount of the deposit, the closing day (the date that you take possession of the home in Canada this is usually days after the Agreement of

2 Purchase and Sale has been signed), request for a land survey to be carried out (if applicable), the date the offer expires, other conditions (such as a home inspection, property appraisal, lender approval of mortgage financing). Once the offer is made and accepted, a deposit is payable. Once the buyer has signed the document, it becomes legally binding. If the buyer withdraws from the offer, the deposit may be lost and the buyer could be sued. Once the agreement has been signed by the buyer, it is presented to the seller who is at liberty to make changes to the price, completion date and chattels. The changes are initialed by the seller and returned to the buyer for review. Once both sides are in agreement, the resulting Agreement of Purchase and Sale will state the purchase price and the deposit. The deposit is placed in a trust account and is credited towards the purchase price once the offer has been accepted by both the seller and the buyer and the transaction is complete. Selling Property in Canada 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. However, a non-resident is required to pay an estimate of the tax before the sale, an amount equal to 25% of the gain. This amount is to be retained by the seller s lawyer until such time as a clearance certificate is received from the Canada Revenue Agency (CRA) in connection with the sale of the property. Upon payment, the CRA will issue a clearance certificate to the seller, but not until there has been a contract of purchase and sale with all subjects (Conditions) removed. The wait for the certificate is usually 6-8 weeks. If the certificate is not obtained, the purchaser is required to withhold from the sale proceeds, a percentage of the selling price (usually 25-50%). On or before the closing date, the mortgage money is transferred to the seller s lawyer and then to the seller and the title is transferred to the buyer s name. The non-resident seller should file a Canadian income tax return for the year in which the sale occurs and should expect to receive a refund of a portion of the taxes paid. The taxation of Canadian real estate depends on whether the use of the property is for a principal residence, an active business or as a rental property. If it is used as a rental property, a 25% non-resident tax must be paid on the gross rent a tenant pays. However, if you use a professional property manager, the manager will, by law, withhold 25% of the gross rental revenue at source to be remitted to the Canada Revenue Agency. Then on or before March 31 of the following year, the property manager issues an NR4 form and you then have the right to file a Canadian tax return. The tax return is due before June 30 and enables you to claim expenses against that income and potentially request a refund.

3 Many countries, such as the U.S., have tax treaties with Canada that prevent you from being taxed in both Canada and your home country. It is advisable to contact a tax accountant in your country for more information. Additional Costs and Fees when Buying and Selling Property The following represents many of the additional costs and fees incorporated when buying property. Your realtor will be able to let you know which are applicable in your Province. Taxes Non-residents of Canada pay tax on income received from sources in Canada. The type of tax paid, and the requirement to file income tax returns, depends on the type of income received. Canada has tax treaties with many countries, including the United States and the UK. A tax treaty is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries. Property Transfer (or Purchase) Tax/Land Transfer Fees Property Transfer Tax (PTT) is calculated between 0.5-2% of the property s total value (not applicable in Alberta, rural Nova Scotia or Saskatchewan). They are generally 1% of the first $200,000 of the purchase price and 2% of the remainder. Since the 2005 Provincial Budget, PPT is now exempt for individuals buying their first home as long as they meet certain criteria, namely that they are a Canadian citizen or Permanent Resident and have never owned a home anywhere in the world; that they have lived in the province for at least one year prior to purchase; that they have filed two Canadian tax returns within the last six years; and that they must occupy the property as their principal residence for the first year of ownership. There are also proportional exemptions to PTT for first-time home buyers which vary by region based on the fair market value of the property. As of December 2007, the Ontario Provincial Land Transfer Tax exemption for first time buyers (up to $2000) now applies to resale as well as newly constructed homes. Similarly, from February 2008, Toronto (and this may spread to other provincial cities) has its own Land Transfer Tax which allows first time home buyers of both new and resale homes to qualify for a rebate. If the property is vacant land, the house must be constructed within one year of closing and the buyer must live in the house for the balance of the year. There are other criteria needed as well to qualify for the PTT exemption, so it is best to consult a lawyer.

4 Clearance Certificate The typical fees associated with preparing and filing a clearance certificate, paid by the seller, range from $300-$1000, depending on the complexity of the transaction. Capital Gains Tax Capital Gains Tax is not applicable on your principal residence. Goods and Services Tax (GST) A 5% GST is only payable on newly constructed homes and is often included in the quoted sales price. New home buyers of residences costing $350,000 or less can apply for a partial rebate of the 5% GST applicable on the purchase price as long as the home is going to be the purchaser s primary place of residence. The rebate is up to 36% of the GST to a maximum rebate of $6,300. For new homes priced between $350,000 and $450,000 before GST, the GST rebate reduces proportionately. New homes priced $450,000 before GST or higher do not receive a rebate. There is no GST on resale housing unless the home has been substantially renovated, and then the tax is applied as if it were a new home. As of April 1, 2013, British Columbia (BC) replaced the 12% HST with the GST at the rate of 5% and a provincial sales tax. Transitional rules, including the BC Transition tax, apply to certain transactions for housing that straddle that date. The BC transitional tax rebate is available in certain situations where the transition applies. GST questions are best answered at source ie: the Revenue Canada website, or by an accountant who is familiar with real estate revenue taxation. Provincial Sales Tax (PST) in BC is 7% and again, is normally included in the quoted sale price. Harmonized Sales Tax (HST) is 12% - a combination of GST and PST and is used in British Columbia (see note below), Ontario, and the Atlantic provinces of New Brunswick, Newfoundland and Labrador, and Nova Scotia. On July 1, 2010, Ontario introduced a federally administered Harmonized Sales Tax (HST) that applies to most purchases and transactions. The HST applies to newly constructed homes, but does not apply to resale homes. Buyers of new homes will receive a rebate of up to $24,000 regardless of the price of the new home. Please note, a referendum was held in BC in the summer of 2011 which resulted in a repeal of the HST tax which will result in a return to the former 7% PST tax system on April 1, In the meantime, on Friday February 17 th, BC Finance Minister Kevin Falcon unveiled a series of HST relief measures which

5 will give BC home buyers and builders a more solid foundation to transition out of the controversial HST tax. Starting April 1 st, 2012, the government will raise the HST rebate threshold for new homes buyers to $850,000, up from the current $525,000, meaning more than 90% of newly-built homes will now be eligible for a provincial HST rebate of up to $42,500. After the HST end date, those who buy a home built before April 1, 2013, will pay a 2% transition tax on the full house price. Property Tax Property tax is an annual fee levied within local communities, which means there are many different rates within each province. The difference between Property tax and Property Transfer Tax is that PTT is a one-time provincial tax which comes into effect upon transfer of property and Property Tax is paid annually to the local taxation authorities. It is determined by applying the value of the property as assessed by the provincial assessment authority to the current tax rates as stated by the local tax authority. The amount can differ each year but generally Property Tax falls between % of the home s market value. Grants and Rebates Home Owner Grant The Home Owner Grant is one of three property tax assistance programs offered by British Columbia. The program began in 1957 to help homeowners reduce the amount of taxes they pay on their home. The purpose of the Home Owner Grant is to help reduce the amount of residential property tax British Columbians pay. The home owner grant applies to taxes paid by British Columbians to their municipality or to the Surveyor of Taxes for rural areas. The grant is available to Canadian citizens or holder of permanent residency status in Canada, who live in British Columbia, and he or she must occupy the home as his/her principal residence. The Home Owner Grant program includes the following types of grants: Basic, Additional, Retroactive, Multiple. For 2013, the home owner grant will be reduced on higher-valued properties by $5 for each $1,000 of assessed value over $1,295,000. The basic grant is eliminated on homes assessed at $1,409,000 or more, and the additional grant is eliminated on homes of $1,464,000 or more. The grant must be applied for each year. Home Buyer s Plan: Registered Retirement Savings for down payments Canada Revenue Agency s Home Buyer s Plan lets qualifying home buyers use up to $25,000 of their Registered Retirement Savings Plan (RRSP) to buy a home. Couples can use up to $50,000. The home

6 must be a principal residence, the home buyers must not have owned a home within the past five years and the loan but be repaid within 15 years. Disabled home buyers upgrading to a more accessible home also qualify as do relatives helping disabled home buyers. Home buyers who have already used the plan and have fully repaid their RRSP may be eligible to use to use the plan a second time. CMHC Mortgage Loan Insurance Premium Refund Provides home buyers with CMHC mortgage insurance, a 10% premium refund and possible extended amortization without surcharge when buyers purchase an energy efficient home or make energy savings renovations. First-Time Home Buyer s Tax Credit This Federal non-refundable income tax credit for qualifying buyers of detached, attached, apartment condominiums, mobile homes or shares in a cooperative housing corporation. It s calculated by multiplying the lowest personal income tax rate for the year by $5,000. Other Expenses Realtor s Fees Realtor s fees are paid by the vendor and are negotiable between 3 and 7% of the home s market value. As a rule of thumb, Realtors often charge 7% on the first $100,000 of the sale and 3% on the remainder. GST of 5% is also applied to the Realtor s Commission and is payable by the vendor. Appraisal Fee Your lender may require a property appraisal at your expense. The cost is between $150-$250. Survey Fee Your lender may require an up-to-date survey. If the Seller does not have one, you will have to pay to have one done. This can be approximately $150-$350. Lawyer s Fees Lawyers review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. The fee will be approximately $500-$850. This amount varies between provinces depending on the complexity of the sale and the type of property. Home Inspection Fee

7 This is usually around $450. This is the equivalent of a survey in the UK and other countries and is carried out at the purchaser s request. Property Insurance Property insurance covers the replacement value of the structure of your home and its contents. Service Charges This can range from $35-$50 to hook up new services and utilities Condominium (Strata) Fees Strata fees are charged monthly and cover building insurance and maintenance. The building s property manager will provide you with the fee. For a newly built condo worth $250,000, expect to pay approximately $200 per month (this varies from building to building and area to area)