Resident or non-resident?
Under Canada’s income tax system, whether and individual is a resident or a non-resident can play a significant role in how much tax they pay.

• A resident must pay Canadian income tax on his/her worldwide income from all sources.
• A non-resident must pay Canadian income tax only on income from sources inside Canada.

Residents
Canada Revenue Agency (CRA) defines a resident as someone who has lived in Canada for a minimum of 183 days within the past year.
If your client is considered a resident of Canada, they will not have to pay taxes owing on the sale of property in Canada until they file their income tax return for the year in which they sold the property,

Non-residents
Your client is a non-resident for tax purposes if they:
• live in another country and are not considered a resident of Canada;
• do not have significant residential ties including a home, spouse or common law partner or property in Canada; and
                • live outside Canada through the tax year; or
                • stay in Canada for less than 183 days in the tax year.
For information visit www.cra.gc.ca and in the search box enter IT221R3. This will take you to a form, Determination of an Individual’s Residence Status.
If your client would like a CRA opinion about their residency status, they should complete and submit Form NR74, Determination of Residency Status (Entering Canada). Visit www.cra.gc.ca and in the search box enter NR74.

Non-residents and property ownership
A non-resident who buys a property and does not rent it, and does not earn income in Canada does not have to file an income tax return.

Non-residents and rental property
A non-resident property owner who rents their property is required to pay a 25% withholding tax on either gross or net rent and have it remitted monthly.

1. Withholding tax on gross rent
A non-resident property owner withholding 25% of the gross rent is required to have a Canadian agent remit the withholding tax to CRA within 15 days or each month-end together with Form NR4 Statement of Amounts Paid or Credited to Non-Residents of Canada.

2. Withholding tax on net rent
A non-resident property owner can apply to have the 25% withholding tax applier to net income instead of gross income, under Section 216 of the Income Tax Act. This will allow the owner to deduct expenses such as mortgage interest, property taxes and maintenance. 

If CRA approves withholding on the net rent rather that gross rent then non-resident property owners must file Form NR6, Undertaking to File and Income Tax Return by a Non-Resident Receiving Rent from Real Property or Receiving a Timber Royalty.
When filing Form NR6, the owner or property manager must still report the gross amount of rental income for the entire year on Form NR4.
A non-resident owner must also file a Section 216 income tax return for the year even if the property owner has no tax payable or no refund coming.

When a non-resident sells a property
All non-resident sellers of Canadian property (including assigning a pre-sale) must notify the CRA within 10 days of the date of the property sale to obtain a Certificate of Compliance and remit 25% of any capital gain (profit).
The Certificate of Compliance is proof that the CRA has received prepayment of the taxes owing on profits. The tax is 25% more of the difference between the sale price and the cost of the property including improvements made during ownership.
If the seller doesn’t obtain a Certificate of Compliance, their notary or lawyer must withhold and remit 25% of the gross proceeds of the sale to CRA.
Buyers also typically request a holdback of 25% or more of the purchase price until the Certificate of Compliance is delivered.
This is to protect the buyer. If a seller were to disappear without paying the required taxes, they buyer would be liable for those taxes.
Sellers taking a loss on a property must obtain a Certificate of Compliance; otherwise 25% of the sale price will be used as a holdback
When a non-resident owner sells a Canadian property that has never been rented, they must complete a Section 116 income tax return, Procedures Concerning the Disposition of Taxable Canadian Property by Non-residents of Canada – Section 116. (Visit CRA website and in the search box enter IC72-17R6).
When a non-resident owner sells a Canadian property that has been rented, they must complete a Section 216 income tax return in the year after the sale. This allows them to claim a refund on their income tax for expenses related to the sale such as notary of legal fees, inspection and survey fees and realtor commissions when they file their tax return.
This return must be filed by April 30.

Article from The Open House, July 27, 2012, Volume 7, Number 8

It's Property Tax Time

By now home owners and businesses through out the province have received their annal property tax notices in the mail.  Property taxes are due July 3, 2012.

Property owners who haven't received a tax notice, should contact their municipal finance department and arrange for a duplicate notice. Property owners are responsible for ensuring that the local government and BC Assessment have your correct mailing address. Property owners must pay property taxes whether or not they receive a notice.

What taxes do property owners pay?
Take a close look at a property tax notice. About 50% of the amount owing is levied by the local municipality. Municipalities are also required to collect the remainder for other taxing authorities and have no control over these levies. Here is a summary:
Municipal tax – is set by council and staff in the municipality’s annual budget process. It’s based on revenue needs for infrastructure and services.
Regional district tax – is set by the regional districts for services such as regional water and sewage treatment. For example, Metro Vancouver tells their municipal governments what their revenue needs are, and the municipalities collect on their behalf. In rural areas, the province Surveyor of Taxes collects for regional districts.
School Tax – is set by the BC government to fund schools. Residential rates vary by school district. School taxes are paid by residential and non-residential property owners.
Hospital tax – is set by the regional hospital district to help fund local health facilities. For example, Metro Vancouver hospitals are funded by the province not by property taxes. Outside Metro Vancouver, hospital taxes are still levied.
Other taxes – are set by local taxing authorities and collected by the municipality to fun BX Assessment, the Municipal Finance Authority of BC and TransLink.

For questions about taxes levies by other taxing authorities, contact:
• BC Assessment Authority, 6074-241-1361
• Greater Vancouver Transportation Authority (TransLink), 604-432-4000
• Metro Vancouver, 604-432-6200
• Municipal Finance Authority, 250-383-1181 (Victoria)
• School Taxes, 250-590-0239 (Ministry of Finance, Victoria)

Avoid late payment penalties
Property owners must pay their taxes by July 3, 2012 of there is a 5% penalty. Property taxpayers who don’t pay be September 4, 2012, face an additional 5% penalty. Property owners failing to pay for three consecutive years, could forfeit their property to tax sale. Information about tax sale dates can be found on local government websites.

The upside of property taxes
• Property taxes help fund a range of local capital projects and services, including:
• Animal control and shelters
• Archives/libraries/museums
• Bicycle lanes/paths/walkways
• Building Regulation
• Community centres
• Energy efficiency upgrades
• Environmental protection
• Garbage and recycling
• Heritage planning
• Local road maintenance
• Parks/trails/green space
• Police/fire/emergency services
• Safe drinking water
• Sewage treatment
• Sidewalks
• Swimming pools/tennis courts/skating rinks/playing fields 

Artice from The Open House, Volume 7, Number 7, June 29, 2012

The government today announced the HST/PST transitional rules on new homes.

As the province transitions back to the PST, which will replace the HST effective April 1, 2013, measures to ease the HST burden on new home buyers include:

The BC New Housing Rebate threshold will increase to $850,000 from $525,000, so that more than 90% of newly built homes will now be eligible for a provincial HST rebate effective April 1, 2012.

The maximum rebate will increase to $42,500 from $26,250 effective April 1, 2012.

Buyers of new secondary vacation or recreational homes outside the Greater Vancouver and Capital Regional Districts priced up to $850,000 will now be eligible to claim a provincial grant of up to $42,500 effective April 1, 2012.

For newly built homes where construction begins before April 1, 2013, but ownership and possession occur after, purchasers will not pay the 7% provincial portion of the HST. Instead, purchasers will pay a temporary, transitional provincial tax of 2% on the full house price.

HST/PST transition rules will help ensure that whenever purchasers buy a new home they will all pay a consistent and equitable amount of tax, whether the home is built:

entirely under the HST;

entirely under the PST; or

partly under HST and partly under the PST.

The temporary housing transition measures will be in place until March 31, 2015. The tax only applies to homes where construction begins before the transition date and ownership and possession occur after.

Does the looming tax deadline have you gritting your teeth? Here's how to get a bigger, better refund.

Does the looming tax deadline have you gritting your teeth? We all have to pay our taxes. And nobody wants to pay too much.

“Unfortunately, people tend to pay more tax than they need to because they do tend to overlook some of the savings they can take advantage of,” said Carol Bezaire, vice-president, tax and estate planning, at Mackenzie Financial.

A deduction is valuable because it reduces your income for tax purposes.

Rack up enough of deductions and you’ll pull yourself down into a lower tax bracket and end up with a big refund, if you’re lucky.

These are worth more to those in higher tax brackets. By contrast, a non-refundable tax credit reduces the amount of taxes owed. The value is the same for everyone. The term “non-refundable” refers to the fact that if the tax credit exceeds the amount of tax payable, you won’t get a refund for the difference.

1. RRSPs: Contributions to Registered Retirement Savings Plans are the mother of all tax deductions. Roughly speaking, you are allowed to contribute up to 18 per cent of your earned income from the previous year, and deduct that amount from your income at tax time.

The government even gives you an extra two months past the end of the previous calendar year to sock that money away. (That’s why January and February are known as RRSP season.) The trick here is that you can carry forward contribution room indefinitely.

You can also carry the deduction forward to use in a year when your income is higher. Check your Notice of Assessment from the Canada Revenue Agency for more details about how much you are allowed to contribute and deduct.

If you carry forward those RRSP contributions to deduct in a future year, keep track of them carefull. This amount will determine how much you can put into your account in the current year.

2. Capital losses: Losses from buying and selling shares in an unregistered account (not your RRSP or your TFSA) can be carried back to any of the previous three years or carried forward indefinitely. These can be applied against capital gains to reduce your total income from investments.]

3. An equivalent-to-spouse-tax-credit: Taxpayers who are single, divorced or separated with children, can be claimed for a child. This non-refundable tax credit is worth $10,527 this year federally. (That’s multiplied by 15 per cent when calculating the final credit, but it’s still far higher than the $4,282 tax credit for a dependent child.)

In the case of a child, the dependent has to be a Canadian, resident, under 18, and financially dependent on you.

4. Child care expenses: These expenses, whether for a nanny or day-care centre, must be claimed by the parent with lower net income in most cases. Allowable expenses are those paid for the care of a child age 6 or under, to enable the parent to work, carry on a business, or go to school.

5. Medical expenses: Claim non-refundable tax credits for medical expenses paid by either you or your spouse or common-law partner.

“People forget to take a look or they assume it’s not eligible,” Bezaire said. But, in fact, any non-reimbursed medical expense can be claimed, including prescription medication, dental surgery that’s not covered by insurance, or laser eye surgery.

Expenses that total more than $2,052 or 3 per cent of net income can be claimed. To make the most of the tax credit, the expenses should be claimed by the person with the lower net income, Bezaire said.

6. Moving expenses: If you moved at least 40 km to be closer to a new job, run a business, or go to school, you may deduct the moving expenses. Eligible expenses include transportation and storage costs, reasonable costs for meals and accommodations, real estate commission, legal fees, and costs related to changing your address, such as replacing your driver’s licence and connecting or disconnecting utilities.

“What many people overlook is that you can claim the cost of moving your children to university or college,” Bezaire said. [More: 10 tax tips to save you money]

7. Carrying charges: This refers to costs incurred in order to earn income on your investments. Fees paid for the management of your investments, other than commissions, are eligible. If you use a safety deposit box for safekeeping your investments, you can claim the cost as a carrying charge.

8. Physical fitness and arts activities for children: Eligible programs must be supervised, appropriate for children and must be at least eight consecutive weeks or five consecutive days long, with at least half of the activities involving a significant amount of physical or artistic activity.

Additional tax credits are available for a child with a disability. The sports programs must build muscular strength, endurance, flexibility and balance. On the arts side, eligible programs can focus on literary, visual or performing arts, music or language.

9. Charitable donations: keep in mind that these donations can be carried forward.

“If you’re doing your housekeeping and find a charity receipt and you say, ‘rats, I didn’t use it’, hang on to it. You can still use it still.

If you have a spouse, pool them and include them on the return of the person who pays the most tax, she added.

January 27, 2012 YahooFinance Article by Madhari Acharya-Tom Yew, available online at http://ca.finance.yahoo.com/news/9-tax-deductions-canadians-often-miss.html