INVESTING IN CANADIAN REAL ESTATE AS A NON-RESIDENT

Earlier this week over the course of my daily rummaging online, I came across an article published by Millionacres (part of the Motley Fool’s investment network) which outlined a basic starting point for anyone in the United States who might be interested in investing in Canadian real estate.

Of course, foreign investment in Canadian real estate is nothing new – nor is it limited to US residents. Anyone who’s been active in Waterloo real estate over the past decade will know that we’ve seen very substantial investment come our way from overseas, particularly within the student housing sector. Families from East Asia and South Asia in particular have been veritably dumping money into our market for years, as family members have enrolled in the University of Waterloo or Laurier and sought out off-campus housing solutions.

Having dealt with a good number of foreign buyers myself, I found the article to be quite informative, and figured it would be helpful to many of you for me to condense in the form of a general Q&A here. You can also find the complete and original millionacres piece here.

Q: First things first – is investing in Canadian real estate legal for non-residents?

A: Yes. There are no residency or citizenship requirements for owning property in Canada – you’ll just need to be mindful of the need to file an annual return with the CRA.

Q: What are the main avenues for investment in Canada?

A: Typically, real estate investments in Canada follow two main paths – either a REIT (real estate investment trust) or investing individually. REITs are simply publicly traded companies that specialize in real estate holdings. The vast majority of Canadian REITs have unique tax advantages, and make a reasonably reliable source of passive income. The more traditional method is one familiar to flippers and investors the world over – purchasing a property to be leased out to tenants or renovated and sold at a profit.

Q: What sorts of tax situations should I be anticipating?

A: Effective April of 2017, foreign buyers in the ‘Golden Horseshoe’ area of Ontario, which includes Waterloo Region, have been subject to a Non-Resident Speculation Tax, or NRST. This is a 15% tax levied by the Government of Ontario upon “the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe Region (GGH) by individuals who are not citizens or permanent residents of Canada or by foreign corporations (foreign entities) and taxable trustees.”

In addition to the NRST, you’ll also need to be mindful of a 25% ‘Withholding Tax’ on rental income earned in Canada. By working with Canadian tax experts, there are good ways to minimize the impact of this tax burden, primarily by playing with definitions of income to switch from taxable gross to taxable net income, or by making the 25% payable on capital gains rather than on the sale price of a flip. As always, I strongly advice seeking the advice of a tax expert if this is something you’re considering.

Q: What should I consider when selecting a tax structure?

A: The article lays out the primary consideration – should you go the personal route, or the corporate route for your holdings? While Canadian corporations tend to shoulder lower withholding taxes, taxes paid on personal income in Canada can often be used to offset your domestic tax burden. Again – speak with a pro!

Q: How about the down payment – how much should I budget?

A: As a foreign buyer, you should be prepared to be asked by the major Canadian banks to put as much as 35% down if you’ll be needing a mortgage.

Q: Does it pay to work with local experts?

A: Absolutely! Nobody knows real estate markets like the locals, and this goes for lawyers, accountants, and other professionals, too! Winging it with your finances is never a good idea – if you’re serious about investing here, take the time to consult with those who know the market best. 

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