If you live in a foreign country and plan to sell a property that is located in Canada, you will need to apply for a certificate of compliance.
What is a certificate of compliance?
As a non-resident, Canada has very limited ways to get to you in the event that you do not pay the tax you owe. This is why the procedure for applying for a certificate of compliance has been put in place.
After the transaction is completed, make sure to send the authorities a request for the certificate along with the amount of tax due (deducted by the notary) if applicable.
By reviewing your request, the tax authorities ensure that the tax has been paid in full and on time before issuing the certificate. This tax represents 25% of the capital gain between the sale amount and the purchase amount of your property (38% in Quebec). Until the applications are approved, your notary will retain 25% of the sale price in a trust account (38% in Quebec).
IMPORTANT: Failure to request a certificate of conformity will severely penalize the buyer at the rate of 25% of the sale price (and not of the added value/appreciation).
When should I apply?
To make proper applications, it is important to meet the deadlines. Your request must be sent no later than 10 days after the date of the transaction (signature at the notary’s office), otherwise a penalty of 25$/day/form/government/property/person applies.
If you are not familiar with Canadian taxation matters, Quebec is the only province that has an independent tax system and laws. Quebecers are the only ones in Canada to have 2 tax returns to file and to have to write 2 applications for certificates. Therefore, in case of delay, the penalties are multiplied by two.
PRO TIP: Apply for the certificate of conformity as soon as you are thinking of selling. That way, you’ll avoid penalties with certainty.
How to reduce taxes on the sale of your property?
Naturally, paying 38% on the gain of your investment is a huge heartbreak. There are several ways to reduce this tax, but filing a tax return is at the top of your list of priorities.
By filing a tax return in the year following the year of the sale, you will be in a position to recover a significant portion, sometimes all, of the tax deducted by using few tricks such as:
- Calculate a progressive tax rate (between 0 and 26%) and claim the overpayment of the 38%.
- Include expenses related to the sale to reduce the profit realized on the sale such as notary, broker and accountant fees.
- Some fiscal magic tricks linked to the (very) flexible rules on the designated primary residence such as the +1 rule or the 45(2) election on changes of use for example.
PRO TIP: ALWAYS file your tax return during the year following the sale of your property. You will recover at MINIMUM 1/3 of the tax withheld.
Where do I start?
If you are considering selling or are in the process of selling your property, we can answer your questions. You can schedule a telephone consultation with one of our accountants at a time that is most convenient for you.