If you’re a foreign resident planning to sell a property in Canada, it’s essential to obtain a certificate of compliance. This certificate is required to confirm that you’ve paid the required taxes, and it serves as proof to the authorities. As a non-resident, it’s challenging for Canada to collect taxes from you, which is why the certificate of compliance process is in place.
To obtain the certificate of compliance, you’ll need to send a request to the tax authorities, along with the tax amount due (deducted by the notary), if applicable, after the transaction is completed. The tax amount is 25% of the capital gain between the sale and purchase price of your property (38% in Quebec). Until your application is approved, your notary will retain 25% of the sale price in a trust account (38% in Quebec).
It’s crucial to apply for the certificate of compliance within ten days of the transaction (notary signature date) to avoid penalties. Failure to do so can result in severe penalties for the buyer at a rate of 25% of the sale price. In Quebec, penalties are multiplied by two since they have a different tax system.
To minimize taxes on the sale of your property, it’s advisable to file a tax return in the year following the sale. This way, you can recover a significant portion or even all of the tax deducted by claiming overpayment or including expenses related to the sale. There are also some flexible rules, such as the designated primary residence rule, that you can use to reduce your tax liability.
To sum up, if you’re planning to sell your property in Canada, apply for the certificate of compliance as soon as possible to avoid penalties. Consult with an accountant to learn more about Canadian taxation matters and how to reduce your tax liability.