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Insights Please select from the links below: › Non Resident Buyers and Sellers of Property in BC › Immigration & Buying a Business in BC as a Non Resident › 100 Best Things About BC › Getting Ready to Sell - CMHC › Home Buying Tips - CMHC › 15 Ways to Get a Better Mortgage Faster - by Ozzie Jurock › Investments & Tax Advantages › Fractional Ownership › Rental Pool › Third Party Representation › Strata Implications Non Resident Buyers and Sellers of Property in BC There are certain legal and accounting issues that arise when a non resident of Canada acquires or sells property in Canada. These issues are set out below. Non-Resident Purchases The issues that arise from a non resident purchase are not from the purchase of the property, but rather from holding the property over a long period of time. There are no restrictions for a non resident purchase, nor are there tax implications. A non resident may purchase as many properties as they wish. Tax issues may arise on the holding of property by non-residents. Non-residents of Canada are subject to tax on various kinds of income paid to them, including rental income. If you are a non resident and are renting property in Canada, a tax return must be filed each year. Non-Resident Sales While there are no issues when a non-resident acquires property, this is certainly not the case when a non-resident disposes of property. The Income Tax Act of Canada provides that whenever a non-resident disposes of property, the non-resident is required to pay the appropriate amount of taxes on any gain. In order to satisfy the purchaser that the appropriate amount of taxes are being paid, the vendor must provide to the purchaser, on or before closing, a clearance certificate from Revenue Canada. This certificate is issued by the federal government and certifies that a certain amount of money is payable for the taxes. The amount owing is deducted from the sale proceeds and sent directly to the federal government by the vendor's lawyer. The clearance certificate is issued pursuant to section 116 of the Income Tax Act and is usually required on the closing date. It may be applied for in advance of the closing by the vendor, but not until there has been a contract of purchase and sale entered into by the vendor, with all subjects being removed. The wait for the clearance certificate is usually around 6-8 weeks, so in a perfect world, there would be a 6-8 week lead-time between when the subjects are removed and the completion date. Complications can arise if the certificate is not obtained prior to the closing date. In such a case, the purchaser is required to holdback from the sale proceeds a percentage of the selling price. This percentage is either 25% or 50%, depending on whether the property is non-depreciable property (a residence of the vendor) or depreciable property (the property has been rented). The transaction closes with the money remaining in a lawyer's trust account until the certificate is obtained. Once the certificate is obtained, the taxes are paid from the holdback and the vendor receives any amount left over. Note that the holdback is based on the selling price, not the equity in the property. If there is financing on the property, the vendor may need to pay this financing from other sources. Non Resident Selling Canadian Real Estate If you are a non-resident involved in the selling of Canadian real estate assets that you own, you should be aware of the applicable provisions of the Income Tax Act to avoid problems when the time comes for the sale to complete. In brief, if taxes are owing to the Canada Customs and Revenue Agency (Revenue Canada) by a property owner, the property can be charged to secure payment of outstanding taxes. This applies to both residents and non-residents. What, however, specifically applies in the case of non-residents selling Canadian real estate is that the property may be charged even after being transferred to the new owner. In order to be protected and pursuant to the requirement of the Income Tax Act, the Buyer must make a 'reasonable inquiry' as to the Seller's residency status. Thus the need for indicating 'Resident of Canada/Non- Resident of Canada' under the Sellers information in the top left section of the Contract of Purchase and Sale. The Buyer's notary or lawyer will make a similar inquiry of the Seller when the conveyancing documents are signed. If the Seller is a non-resident of Canada, he must apply for and obtain a Clearance Certificate from Revenue Canada and provide the Buyer with this Certificate. It normally takes four to six weeks for Revenue Canada to issue a Clearance Certificate. If a Clearance Certificate is not provided to the Buyer or his conveyancing representative, then the Buyer must hold back one-third of the sale price until the Certificate is provided. If the Certificate, furthermore, is not forthcoming the holdback money is then remitted to Revenue Canada and the Buyer - and the newly acquired property - are protected from any further liability or charge. A problem, moreover, may arise at the time of completion if, for instance, the existing mortgage exceeds two-thirds of the sale price and there are therefore no sufficient proceeds to allow for the holdback and clear title, not to mention payment of closing costs. So therefore, if you are (or will be at the time of completion) a non-resident Seller be sure to raise this issue before the property is sold and there is still time to obtain the required Clearance Certificate. Likewise, if you are the Buyer and you learn that the Seller is a non-resident, be sure there is ample time before completion and possession. Who is a Non-Resident? The term "resident" is not defined in the Income Tax Act, however, the courts have held "residence" to be a "matter of the degree to which a person in mind and fact settles into or maintains or centralizes his ordinary mode of living with its accessories in social relations, interests and conveniences at or in the place in question." The courts have held that an individual is "ordinarily resident" in Canada for tax purposes if Canada is the place where the individual, in the settled routine of his or her life, regularly, normally or customarily lives. In making a determination of residence status, all of the relevant facts in each case must be considered, including residential ties with Canada and length of time, object, intention and continuity with respect to stays in Canada and abroad. Return to Top
How It Works The Provincial Nominee Program selects and nominates potential immigrants for permanent residence who have the ability to become economically established in B.C. and who will provide significant economic benefits to the province. Individuals nominated by the Province of B.C., together with their spouse and dependent children, are eligible to apply for a permanent resident visa from Citizenship and Immigration Canada in the Provincial Nominee Class. Citizenship and Immigration Canada gives priority to processing permanent resident visa applications for provincial nominees. Citizenship and Immigration Canada makes the final decision on these applications. Eligible Business The BC PNP will only consider applications to establish or purchase and expand a business that meet the following eligibility criteria:
The BC PNP will give special priority to business proposals that contribute to:
Ineligible Business Applications will not be considered for the following types of businesses:
Benefits of BC PNP Skilled Worker (Program) The benefit for the prospective immigrant of participating under BC PNP is two-fold.
Work Visas Under BC PNP Skilled Worker After the applicant has obtained BC PNP approval and been nominated, a letter is issued to the relevant Citizenship and Immigration Canada post confirming the applicant has been nominated. This letter also contains wording that it is requested the applicant's "application for a work permit (to be submitted by the applicant) be processed without the need for HRSDC confirmation." This letter is also sent to the applicant. Applicant can attach the BC PNP letter to his work visa application when he files. 3 Categories to BC PNP Business There have been major changes in the Business Immigrants categories. The categories in the Business Immigrants category are (1) Business Skills; (2) Regional Business: and (3) Strategic Projects. The business component of the BC PNP offers accelerated immigration for qualified entrepreneurs who wish to settle in B.C. and become permanent residents of Canada. The BC PNP selects and nominates for permanent residence potential business immigrants who have the ability to establish themselves successfully in B.C. and develop a business that will provide significant economic benefits to the province. Applicants must meet the program's selection criteria but should be aware that meeting the minimum requirements does not guarantee approval. The BC PNP establishes nomination targets for the program, and gives priority to candidates who demonstrate the greatest potential to create a successful business and contribute economic benefits to the province. 1. Business Skills An application under Business Skills allows the applicant to set up the business anywhere in BC, including Vancouver. The requirements are:
Principal applicants in the Business Skills category may include one foreign key staff person as a co-applicant for nomination, but must still create three jobs for Canadians or permanent residents. Applications will not be accepted from individuals who have an unresolved refugee claim in Canada, are in Canada illegally, are under a removal order in Canada, or are prohibited from entering Canada. The applicant now has two options:
2. Regional Business An application under Business Skills allows the applicant to set up the business anywhere in BC, that is outside the Greater Vancouver Regional District ("GVRD") and Abbotsford. The requirements are:
Applications in the regional business category are limited to principal applicants Ð there is no provision to include foreign key staff as co-applicants for nomination. Applications will not be accepted from individuals who have an unresolved refugee claim in Canada, are in Canada illegally, are under a removal order in Canada or are prohibited from entering Canada. The applicant now has two options:
3. Strategic Projects Strategic Projects is the third category in the Business Immigrant categories. Strategic Projects generally are bigger investment projects. Strategic Projects applications allow the applicant to include larger numbers of additional key staff in the application. The new requirements are: Companies applying in this category will be required to:
Update: In general, the requirements under the categories have been made less onerous. There are reduced amounts being required for net worth and investment. The employment requirements to create new employment for Canadians have been reduced. The percentage required to be owned of the business has been reduced. The most interesting development is the creation of a "Fast Track" option under which the applicant pays a $125,000 performance bond that will allow the applicant to have the application immediately "fast tracked" to obtain Canadian permanent resident status. Applicants in the Business Immigrants categories should note that the Fast Track option of paying the $125,000 performance bond is NOT available to key staff included in their application. The forms for the Business Immigrant categories are now more detailed. It is hoped this will lead to reduced processing time of applications as more detailed information will be required to be initially included. Federal Investor Immigration Program If you are a successful businessman who wishes to immigrate to Canada you should consider the Federal Investor immigration category. If you are a Canadian Landed Immigrant or Canadian citizen who is thinking about sponsoring your parents you should also consider having your parents immigrate to Canada using the Federal Investor Immigration Category. The Canadian Federal government recently announced that Federal Investor Immigration cases will receive new priority faster processing service. They have announced these cases will be processed within one year of filing. This is a significant improvement over the past processing times of 2-3 years in many offices of these types of cases. Recently the Federal government has recently put less emphasis on the sponsorship of parent category. The time for processing of the sponsorship of parent cases has gotten considerably longer and in some cases is now approximately 5 years. This is significantly slower compared to the previous 12-18 months processing times. In order to be eligible for the Federal Investor Immigration program there are a number of basic requirements: $800,000 net worth of immigrant and spouse/common law partner; invest $400,000 in a federal approved fund; and have business experience. There are two options concerning having business experience. Option one is the management of at least 5 full time job equivalent employees for two years within the 5 year period before the date of the filing of the application and ending on the date the determination is made in respect of the application. Option two is the management and control of a qualifying business for two years within the 5 year period before the date of the filing of the application and ending on the date the determination is made in respect of the application. The business must meet certain criteria to be a qualifying business and be eligible. There are four areas of consideration. These are number of employees, sales, net income and assets. There is a formula used that depends on the amount of ownership in the business. The $400,000 that is invested must be left in the federal approved fund for a period of five years. At the end of five years the capital will be returned. There are also financing options available with various Canadian financial institutions. In these cases the applicant pays the Canadian financial institution an amount (at present approximately $110,000). The bank lends the applicant the balance (approximately $290,000) required to invest the required total of $400,000. At the end of the five year period the applicant does not receive back any money. The $110,000 has been used to paid for the borrowing and administrative charges of the bank. The new priority service for the Federal Investor Immigration Program has been created to allow the federal investor program to compete with the Quebec Investor Immigration Program. The Quebec program has traditionally had a significantly faster processing time with similar eligibility requirements. With a similar processing time the main difference will now be under the federal program the applicant can live any where in Canada. Under the Quebec program the applicant must convince a Quebec officer in an interview the applicant wishes to settle in Quebec. With the new priority given to the Investor application and the much faster processing times, and with the reduction in emphasis on the sponsorship of parents category and the much slower processing times, applicants that can qualify and wish to immigrate to Canada quickly should consider the investor class. Investment in the Business (Share Purchase) If you are buying the shares of an existing operating business no more than two thirds of the applicable minimum personal investment can apply to the purchase of shares and you must acquire ownership and control of at least one third of the business. The shares you buy to purchase the business must be common full-voting shares and must not have a redemption option. If you are buying the assets of an existing business no more than two thirds of the applicable personal investment can be applied to the purchase of these assets. The applicable minimum personal investment can not be applied to the purchase of real estate unless you can show that it is essential to the business, in which case no more than two thirds of this investment can be applied for this purpose. The applicable minimum personal investment can be applied to the following types of business costs, provided that the amounts are reasonable for the business involved:
If, because of the nature of your business, you are unable to apply the full amount of the minimum required personal equity investment to these types of expenditures, you may apply the balance to wages, building rent and other normal operating expenses (excluding any payments to yourself or family members) during the first six months of operations if you are establishing a new business, or three months if you are buying a franchise or an existing business. Return to Top |
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Matt Cameron Recreational Real Estate Professional |
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