Buying and Selling Property in Canada for US Residents
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When it comes to buying its pretty straightforward but there are some differences ; for example, buyers and sellers do not have to be present at the closing in Ontario, because the paper work is all done in advance. Lawyers usually handle the process It's important to be aware of these differences so they don't cost you money. The best way to learn about these differences is to work with a Realtor who is experienced in dealing with buyers from the USA.
Land Transfer TAX The Ontario Government has changed the rules governing the Land Transfer Tax that must be paid on the purchase of land in the province of Ontario. For many years, non-Canadian residents were charged a 20% Land Transfer Tax on recreational properties while Canadian residents were charged about1%. Now foreign residents pay the same as Canadian residents
This initiative means that vacation property in Ontario will cost foreign residents about 19% less than it did a few years ago. On a typical cottage purchase of $150,000 (Canadian), the 20% Land Transfer Tax would have added $30,000 to the purchase price. The cost to foreign residents would have been $180,000. The Canadian resident would have paid only an additional $1225.00 for a total difference of $28,775..
Clearly this is a great time to buy recreational property in the Grand Bend area where real estate prices are still reasonable ( see Detroit Free Press Aug 2000 Article ) and in most cases at their lowest levels in years even though they have been rising in the past 3 years. Lakefront prices have risen most rapidly and supply and demand dictate that prices will continue to rise as the southern Lake Huron shoreline becomes fully developed. Financial experts believe that because of the onslaught of " Baby-boomers " prices will continue to rise and choice will decrease over the next 10 years.
With the reduced transfer tax , the favourable exchange rate and the lowest mortgage rates in 40 years.........................
:now, is simply the best time to invest in some Grand Bend and area vacation property!
Selling offers a few more complications. This from the Detroit Free Press Aug 26, 2000
" When Americans sell a cottage in Ontario, according to Revenue Canada, they must use a notary or lawyer in Canada. The Canadian government collects 33 percent of the capital gain as a withholding tax.. Capital gains are calculated after the purchase price and improvements have been taken into consideration. " American residents who sell must also file a Canadian income tax return that year, listing only the capital gain from the sale. Seventy-five percent of that amount is taxable at a rate from 17 percent to 29 percent. The withholding tax is credited against any money owed.
The capital gain must also be reported to the Internal Revenue Service in America. If the profit has already been taxed in Canada, however, it can be claimed as a foreign tax credit so the money isn't taxed twice, said Dave Tash, IRS spokesman in Detroit."
As you can see there are some complications to this process and it is strongly recommended you seek out the proper advice from professionals.
This link http://www.cra-arc.gc.ca/tax/nonresidents/disp-e.html will take you directly to the Canada Revenue Agency website page that deals with this info in detail from the Canadian perspective....in its simplest form you do pay tax on the capital gains you obtain on the property ; this is after you deduct all your allowable expenses. Canada will withhold approximately 1/3 of the (adjusted) gain as a credit to the tax you owe at the time of sale . You then file a tax return to determine actual taxes. Due to tax treaties between Canada and the US there are other offsets and credits to deal with and we recommend professional advice.
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Larry Broadley Broker RE/MAX Bluewater Realty Inc. Brokerage
Grand Bend, ON N0M 1T0 519 238 -5700
e-mail : larryb@grandbend4sale.com Website : www.grandbend4sale.com