Further to my last column when I introduced you to investing in Canada, I’m now going to take you through what costs there are in purchasing real estate in Canada. These costs are in addition to the purchase price.
The following represents many of the additional costs and fees incorporated when buying property. Canadian Acquisition Partners will be able to let you know which are applicable in each Province of Canada.
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.
Property Transfer (or Purchase) Tax / Land Transfer Fees are 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 value and 2% of the remainder.
Property Transfer Tax (PTT) is 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 $2,000) 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 or notary.
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 is not applicable on your principal residence.
Goods and Services Tax (GST) of 5% 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 transition tax rebate is available in certain situations where the transition tax 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 Ontario, and the Atlantic provinces of New Brunswick, Newfoundland and Labrador, and Nova Scotia. On July 1, 2010, Ontario introduced a federally administered (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.
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 0.5-2.5% of the home’s market value.
Summary
Neither the local, provincial or federal governments have fee adjustments for foreign nationals. The fees paid for the transfer of property, the annual property taxes, etc are all based on the same formula and are applied uniformly to all property owners. With regards to income taxes, there may be different rates of tax applied depending on the country of residence of the foreigner and whether or not there is a tax treaty between that country and Canada.