Buyer beware: How purchasing property from a non-resident of Canada could leave you with a hefty tax bill
If you’re buying a house or condo and you suspect that the current owner from whom you are purchasing the property is a non-resident of Canada, you could be personally liable for the vendor’s Canadian capital gains tax if you don’t take certain precautions.
Indeed, this is precisely what happened in a recent tax case decided this summer. But, to properly understand the case and thus ensure you don’t find yourself in a similar situation, a brief review of how Canada taxes residents and non-residents is in order.
If you’re a resident in Canada, then you have to pay tax in Canada on your worldwide income. Non-residents of Canada generally don’t have to pay Canadian tax unless they earn Canadian-source income. Some types of income, such as dividends and rental income, are subject to non-resident withholding tax while other types of income that a non-resident earns in Canada must be reported on a Canadian tax return. These types of income include Canadian employment income, business income earned from a business carried on in Canada and capital gains from disposing of Canadian real estate.