Purchasing property in a country other than your own can be a daunting process. You are unfamiliar with the country’s rules and regulations, among other things. If you are considering purchasing property in Canada, then the following tips should be helpful in getting your foot in the door and making sure that you make the right move.

Defining Non-Residents

The term non-resident typically refers to someone who does not live in a certain location. However, it is not as cut-and-dry in real estate. Canadian citizens who reside in another country for more than half the year are considered non-residents by banks, thus subjecting them to the same rules. However, the government does not consider them non-residents and therefore does not impose a Non-Resident Speculation Tax on them.

Furthermore, residents purchasing property with non-residents are also treated as non-residents by Canadian banks. This results in a higher down payment and additional rules. However, a non-resident purchasing a home with a spouse who is a permanent Canadian resident is not subject to the Non-Resident Speculation Tax.

Things to Consider Before Making the Plunge

Canada is one of the most diverse countries in the world, and it welcomes home buyers from around the world with no restrictions in terms of the amount or type of real estate that foreign buyers can purchase. However, some banks will limit the number of properties they will finance to 5 per person.

One key factor in determining whether you should invest in real estate in Canada is your reason for doing so. It is important to know that immigration to Canada is a complex process, and owning property in the country is not a determining factor. It certainly will not hurt your odds, and it is considered as part of your overall net worth. However, it does not affect the selection process.

Reasons for Considering Canada

Many people have begun to purchase property in Canada, either as a primary residence or a second home. The reasons for choosing Canada are varied, with many attracted by Canada’s amazing scenery and lifestyle, as well as its diversity. However, the primary reason that homebuyers and investors make the plunge to buy property in Canada is that the market has faired well, despite the global recession and rising costs. Properties continue to be developed across the country, and new regulations have eliminated many from the pool of buyers.

Familiarize Yourself with the Purchase Process

The process in Canada is different from that in many other parts of the world. The majority of realtors cooperate in multiple listings, and a single realtor can access information on all available properties in an area. Independent realtors are appointed by both the buyer and seller, though the seller typically pays both realtors once the sale is finalized. The buyer’s agent will draft an Offer to Purchase, which is submitted with a deposit. If the conditions of the agreement are not met and the sale falls through, then the deposit will be refunded. The sale proceeds once the offer is signed by both parties and all conditions, such as mortgage approval, are met.

Finance Your Purchase

Consider all available options when financing your purchase. Although paying in cash is often recommended, it may not always be feasible. Additional options include remortgaging your primary residence or other property or arranging a mortgage on your Canadian property through either a Canadian lender or one from your home country. Remortgaging is often the easiest option.

Familiarize Yourself with the Tax System

The federal and provincial governments impose income taxes, which account for over 40% of total tax revenue. The Canadian tax system is progressive, meaning that wealthier individuals pay a higher percentage. Various other federal, provincial, and local taxes are payable by individuals. These include sales and property taxes. Residential properties are subject to annual local taxes of 0.5 to 2% of their value.

Additionally, non-residents pay federal and provincial income tax on Canadian-sourced income. Rental income is taxed at 25%, though expenses can be offset against tax. Furthermore, a non-resident selling a property in Canada must pay a Capital Gains Tax of 25%, levied on a percentage of the profit.

Travelling to Canada

Modern technology allows us to purchase property from anywhere in the world, so it is not required to travel in order to do so. Properties can be viewed from anywhere through interactive virtual tours, and many agents will work with non-residents to make the process easier. However, opening a Canadian bank account must be done in person, and this is required to obtain a mortgage in Canada.

Rundown of Costs

When purchasing property, you need to be aware of the costs. These include purchase price, applicable taxes, legal fees, and more. The following is a list of costs associated with real estate purchases.

• Deposit – The deposit is a percentage of your purchase price. In Toronto, it amounts to 5%.
• Property Appraisal – The lender typically covers this cost, which runs at approximately $400-500.
•Home Inspection – This cost must be paid at the time of inspection, and it typically runs between $400 and $600.
• Balance of the Purchase Price – This is the remaining price once the deposit is deducted. The bulk of this cost is covered by your lender, after which it must be repaid through your mortgage.
• Legal Fees – These costs vary according to the purchase price and lawyer.
• Title Insurance – The title insurance is sometimes included in your legal fees, though it is not always the case. This typically costs anywhere from $250 to $400.
• Mortgage Broker Commission – If applicable, this is typically paid by the lender.
• Property Survey – If a property survey is required, it will cost anywhere from $1,000 to $2,000.
• Non-Resident Speculation Tax – This tax amounts to 15% of the purchase price.
• Property Tax Adjustment – This is a reimbursement to the seller of property taxes they paid beyond the closing date.
• HST – This is typically only applicable on new construction condos and houses.
• Tarion Warranty Fees – This applies only to warranty on new construction condos and houses.
• Adjustments – Adjustments are made as a reimbursement to the seller for prepaid utilities, condo fees, etc. The total amount varies by situation.

The deposit and property appraisal will be paid ahead of time, the home inspection fees are paid at the time of inspection, and everything else is paid upon closing. Some costs can be omitted if the services, such as a property survey, are not required. Additionally, as noted above, some costs are covered by the lender and added to your mortgage. It is important to discuss these details and find out exactly what you own and when it is due. Inquire about additional costs, such as the Land Transfer Tax and Provincial Sales Tax, which vary by location.

Tips for Buying Property in Canada Non-Residents Edition by Condo.ca