There are several options for non-residents acquiring real estate in Canada, each with different tax implications: 1. Personal acquisition results in 25% withholding tax on rental income and 50% of capital gains being taxed at progressive rates. 2. A Canadian corporation avoids withholding taxes but rental income is taxed at 26.9% combined rate, and capital gains are taxed at 50% of the 26.9% rate. 3. A non-resident trust pays 42.9% tax on net rental income and the same tax rates on capital gains as personal acquisition. The presentation compares the tax rates and implications of these and other options such as partnerships.

1. Presented by
Nancy Nerone, LL.M. Fisc.
October 2015
Villeneuve Venne, LLP

2. Villeneuve Venne, LLP
Non-resident acquisition of real estate in Canada
 The tax considerations of various ownership structures;
 Financing, tax implications and cost of structure are determining factors.
2

3. Rental Income
 Federal withholding tax of 25% on gross rental income1;
 Payment is the responsibility of the tenant or agent landlord;
 N/R could elect to file a tax return and pay on the net rental income and claim
the W/H as an installment;
 The N/R could elect at the beginning of the calendar year to pay W/H on the net
rental income2 by completing form NR6;
1. Paragraph 212 (1) (d) of the Income Tax Act. (ITA)
2. Subsection 216 (4) of the ITA
Villeneuve Venne, LLP 3
Personal Acquisition

4. Taxation of Capital gain
 50% of the capital gain will be subject to tax at the progressive tax rates;
 The Capital gain is also subject to tax in Quebec3;
 In order to reduce the W/H tax upon disposition of the property the N/R must request a
certificate of compliance no later than 10 days following the disposition, by completing the
forms, T2062, T2062A and TP-1097 for Quebec. This will result in W/H tax of 25% federal
and 12,75% Quebec of the capital gain. If the property is depreciable property, the
government authorities will determine the amount.4
 If the certificate of compliance documents have not been completed, the purchaser must
W/H 25% Federal of the gross proceeds of the sale and 12.75% Quebec of the gross
proceeds of the sale. If the property is depreciable property the W/H will be 50% Federal of
the gross proceeds and 30% Quebec of the gross proceeds.
3. Section 26, paragraph 1089 © and 1097 (6) of the Quebec Tax Act
4. Subsections 116 (2) & 116 (3) of the ITA
Villeneuve Venne, LLP 4
Personal Acquisition

5. Villeneuve Venne, LLP
Acquisition by a Canadian Corporation
 This structure allows you to avoid the W/H tax on rental income;
 If the income is considered passive the tax rate is 26,9%, Federal and Quebec
combined;
 Upon repatriation of income to the N/R, the amount exceeding the N/R
investment will be subject to a 5% and 15% W/H, depending on the tax treaty
and the status of the shareholder;
 Thin capitalization rules;
 Upon disposition 50% of the gain will be taxable at 26,9%, Federal and Quebec
combined.
5

6. Villeneuve Venne, LLP
Acquisition by a non-resident trust
 This structure will result in the same treatment as personal holding. However the
net rental income will be subject to 42,9% tax rate (in Quebec);
 There are no W/H tax for amounts distributed to foreign beneficiaries and no
deduction for the trust of amounts attributed to beneficiaries;
 If it is foreign financing and not guaranteed by the Canadian property, there will
be no W/H on interest payments;
 Upon disposition of the property, the same rules as personal acquisition apply.
6

7. Villeneuve Venne, LLP
Acquisition by a Canadian trust
(Non-residents are beneficiaries)
 Not subject to W/H tax on rental income;
 All rental income taxed at highest tax rate 49,9%;
 If the trust pays the taxes and distributes the balance to it’s N/R beneficiaries it
will be considered a capital distribution not subject to W/H;
 If the income is attributed to the N/R beneficiary a 36% tax will be payable by the
trust and upon distribution to the N/R a W/H between 15% and 25% will be paid;
 A personal trust is subject to the deemed disposition rule on its twenty first
anniversary.
7

8. Villeneuve Venne, LLP
Acquisition by a partnership
 A N/R partner will automatically change the status of the partnership to a N/R
partnership;
 Subject to W/H tax as for personal ownership;
 The N/R partner could file a tax return and pay taxes on net rental income;
 Not possible to rollover property to a N/R partnership.
8

9. Villeneuve Venne, LLP 9
Summary of Canadian / Quebec Tax Rate
(%) for 2015
* This comparison is based upon rates in effect October 2015
Rental income Canadian Corporation Non-Resident Corporation Non-Resident Trust Non-Resident Individual
no 216 w/216 no 216 w/216 no 216 w/216
Canadian withholding tax
on gross rent
- 25 - 25 - 25 -
Canadian tax on net rent 15,00 - 25.0 - 42,90 - 28.63
Quebec tax on net rent 11,90 11.91
11.91
- - - -
Canadian withholding tax
on dividends to NR
shareholder
25/15/52
- - - - - -
Effective rate to NR 45.2/37.9/30.6
25 on gross 11.9
on net
36.9 on net 25 on gross 42.9 on net 25 on gross 28.6 on net
1 Quebec deeming rule for NRcos earning Quebec rental income even though not a business.
2 WT on dividend from Canadian corporation to NR depends on whether NR shareholder is individual or corporation
and on the applicable treaty, if any.
3 Based on net rental income of $ 100 000 earned in Quebec.

10. Villeneuve Venne, LLP 10
Summary of Canadian / Quebec Tax Rate
(%) for 2015
* This comparison is based upon rates in effect October 2015
Capital Gain Canadian Corporation Non-Resident Corporation Non-Resident Trust2 Non-Resident Individual3
Canadian domestic tax on
gain
7.5 12.5 12.1 12.1
Quebec tax on gain 5.9 5,9 12.8 12.8
Canadian withholding tax on
dividends to NR shareholder
25/15/51
- - -
Effective Rate to ultimate
NR
35.0/26.4/17.7 18.4 24.9 24.9
1 WT on dividend from Canadian corporation to NR depends on whether NR shareholder is individual or corporation
and on the applicable treaty, if any.
2 Federal remission order for NR individuals (including NR trust) which removes federal surtax and grants Quebecabatement.
3 Assuming maximum tax rate in Quebec (49,97 X 50 %).