Hi, I have been a non-resident of Canada of the past 8 years. I purchased a Canadian house in 2022 with the intent of eventually moving back to Canada someday in the future. I never lived in the home and rented out the property since acquisition. Due to rising carrying costs, I reported rental losses in each of the years that I have owned the property and never took depreciation. Recently, due to a personal situation, I had to sell the house quickly and will be taking a capital loss.
The T2062 and T2062A were filed in a timely manner, however there will not be enough time to get a Purchasers Comfort Letter from the CRA (let alone a Compliance Certificate) due to the short closing window. I was advised by my accountant that the holdback is 25% on gross proceeds (which is consistent with a previous rental home that I sold as a non-resident). However, the purchasers' lawyer is insisting that the holdback should be 50% (not 25%) since it was used as a "rental property".
My question: which is it... 25% or 50% holdback? I can manage 25% holdback but 50% is a deal-breaker (it's taking CRA 180 days to process the Clearance Certificate).
Thanks!!
Holdback on Sale of Canadian Property by Non-Resident?
Moderator: Mark T Serbinski CA CPA
Re: Holdback on Sale of Canadian Property by Non-Resident?
Unfortunately, rental property (ie. the building) can be considered depreciable property and would be subject to 50% withholding.
I'm not sure if how you hold the property affects this (in a company, etc): I've never heard of anyone on this forum having the 50% definition applied.
I'm not sure if how you hold the property affects this (in a company, etc): I've never heard of anyone on this forum having the 50% definition applied.
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Re: Holdback on Sale of Canadian Property by Non-Resident?
Thanks for your quick response. I've only ever held the property as an individual (not a corporation). Since I never claimed depreciation on the rental property, is it still considered "depreciable property"? There won't be any CCA recapture. My understanding is that a 25% holdback is the standard practice for a residential rental property similar to my situation. At 50% holdback, there won't even be enough proceeds to discharge my mortgage, so it puts me in a predicament where I can't close on the house. I would think that there must be some sort of reasonability test here as this is illogical.
Re: Holdback on Sale of Canadian Property by Non-Resident?
Thanks for your response. I've only ever held the property as an individual (not as a corporation). Since I never claimed depreciation on the building, would it still be considered "depreciable property"? There would be no CCA recapture upon sale. My understanding is that a 25% holdback is standard practice for a residential rental property similar to mine. At 50% holdback, there won't even be enough proceeds to discharge my mortgage, so it puts me in a predicament where I can't close on the house. I would think there is some sort of reasonability or judgement test that needs to be applied as the situation seems illogical. Especially given the fact that I will have a capital loss on the house and therefore no taxes owed.
Re: Holdback on Sale of Canadian Property by Non-Resident?
I c presume your lawyer doesn't deal with non-res very often, so may be misinterpreting. He needs guidance form CRA or a more knowledgeable colleague
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Re: Holdback on Sale of Canadian Property by Non-Resident?
"your lawyer", no, poster is saying it's the purchasers' lawyer. The other side always takes extra CYA caution even if this means ignoring true law. Same goes on in USA sales with FIRPTA w/h and the buyer-side lawyers need to be educated with IRS (or in your case) CRA citations. Hopefully your w/h is reduced and thereby cash flow improved, but at end of day remember this is merely w/h tax and once you report the sale on a tax return, you'll receive in refund any and all excess w/h over tax due on sale gain.
Re: Holdback on Sale of Canadian Property by Non-Resident?
Ok, so the other lawyer. Agreed that he will be cautious. However saying "it's only withholding" doesn't help our poster, since it would seem to jeopardize them sale altogether (ie. he might not have enough to settle the mortgage, and/or purchase a new home). Compliance letters are taking an EXTREMELY long time.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing