Okay, welcome back (potentially)! We've noticed more Canadians currently living in the USA are dreaming of that West Coast lifestyle and exploring a move back, often setting their sights on beautiful Victoria, BC. Whether you're planning a permanent return or considering an investment property while staying Stateside, buying real estate from abroad involves some extra layers. Think of this as your starting point – a roadmap to the key legal and tax considerations you'll need to navigate.
Remember, while we're expert REALTORS®, we're not tax accountants or lawyers! This information is for general awareness, and seeking specialized professional advice tailored to your unique situation is absolutely essential.
Here’s a breakdown of what you need to consider:
Are You a Resident or Non-Resident (for Tax Purposes)?
This is ground zero for Canadian tax implications. The Canada Revenue Agency (CRA) looks at your "residential ties."Significant Ties
- Do you have a home in Canada?
- Is your spouse or common-law partner in Canada?
- Do you have dependents in Canada?
Secondary Ties
These can include personal property (like a car), social ties (memberships), economic ties (bank accounts, credit cards), a Canadian driver's license, or a Canadian passport.
Physical Presence
Generally, spending less than 183 days in Canada and not having significant ties might classify you as a non-resident. Spending 183 days or more could deem you a resident, even without significant ties, unless a tax treaty says otherwise (like the Canada-US Tax Treaty).Why it matters: Your residency status dictates how Canada taxes your worldwide income (if resident) versus only your Canadian-sourced income (if non-resident). This affects everything from income tax rates to eligibility for certain credits and benefits. The CRA's Form NR74 can help determine your status, but professional advice is key.
Financing Your Purchase
Lenders may classify Canadian citizens living abroad as “non-resident borrowers” for mortgage purposes, which affects down payment and documentation requirements. This is distinct from CRA tax residency rules.
- Down Payment: Expect higher down payment requirements, typically at least 35% for non-residents, potentially more depending on the lender and your specific situation (like not filing Canadian taxes).
- Documentation: Lenders will likely require extra documentation, such as a reference letter from your US bank, proof of income verifiable in Canadian or US dollars, bank statements, and potentially more.
- Foreign Buyer Ban: Keep in mind the Prohibition on the Purchase of Residential Property by Non-Canadians Act. While aimed at non-Canadians, its specifics and exceptions (like for those intending to become permanent residents, or for properties outside certain urban areas) are worth reviewing with your legal counsel. While the foreign buyer ban does not apply to Canadian citizens (even if living abroad), mortgage lenders may still apply stricter lending rules and require higher down payments if they treat you as a non-resident borrower due to your income or tax residency. Some lenders may still require proof of intent to return to Canada if the buyer is a citizen abroad.
Navigating the Tax Landscape
This is where things get particularly complex, especially if you remain a US resident or citizen.
Income Tax (If Renting Out the Property)
- Canadian Tax: As a non-resident owner earning rental income from Canada, the default is a 25% withholding tax on the gross rental income, remitted monthly by your tenant or property manager.
- Section 216 Election: You can elect (using Form NR6 before receiving rent, and filing a Section 216 return after year-end) to be taxed on your net rental income (income minus expenses) at standard Canadian marginal rates. This often results in lower tax payable.
- US Tax: You'll also need to report this rental income on your US tax return. The Canada-US Tax Treaty helps prevent double taxation through foreign tax credits, but navigating the rules requires expertise.
Property Purchase Taxes (BC Specific)
Property Transfer Tax (PTT): Paid on registration. Rates are 1% on the first $200k, 2% between $200k and $2M, 3% above $2M. An additional 2% applies to the portion of residential property value over $3M.
- Additional Property Transfer Tax (Foreign Buyers Tax): Non-residents (including foreign corporations and taxable trusts, but not Canadian citizens living abroad) pay an additional 20% PTT on the residential portion's fair market value in specified areas, including the Capital Regional District (where Victoria is). Careful ownership structuring is needed if non-citizens are involved.
- GST: Usually applies only to the purchase of newly built homes (5%).
Ongoing Property-Related Taxes (Federal, Provincial, Municipal)
These target vacant or "underused" properties. Your residency status and how you use the property are critical.
- Federal Underused Housing Tax (UHT): An annual 1% federal tax on the value of residential property owned by non-resident, non-Canadians. Generally, Canadian citizens, even those living abroad, are excluded owners and don't have to file or pay. However, ownership structures like partnerships or trusts involving Canadians might still trigger filing requirements, even if no tax is ultimately due. Check the rules carefully!
- BC Speculation and Vacancy Tax (SVT): An annual provincial tax.
- Applies in designated regions, including the Capital Regional District.
- Rate: 2% for foreign owners and "satellite families" (those declaring less than 50% of combined household income on Canadian tax returns); 0.5% for other Canadian citizens/permanent residents.
- Requires an annual declaration from all owners in taxable regions, even if exempt.
- Exemptions exist (e.g., principal residence, qualifying long-term rentals, certain life events). Credits are available for non-BC residents based on BC income tax paid.
- Victoria Empty Homes Tax (EHT): A potential future municipal tax. While discussed, the City of Victoria has not implemented its own specific Empty Homes Tax yet (as of 2025-04-22). However, the provincial SVT applies within Victoria. Stay tuned for any municipal developments.
Ownership Structure
Will you own the property personally, jointly, through a trust, or a corporation? Each has different legal, tax, and estate planning implications, especially in a cross-border context. Control and beneficial ownership can significantly impact taxes like the Additional PTT.Cross-Border Compliance
- US Obligations: As a US resident or citizen, you have ongoing US tax obligations. This includes reporting worldwide income (like Canadian rental income) and potentially specific reporting for foreign assets (like Canadian real estate or bank accounts) under rules like FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act).
- Estate Planning: Owning assets in multiple countries complicates estate planning. US estate taxes might apply to Canadian property owned by US persons, subject to treaty provisions. Wills and powers of attorney need careful cross-border consideration.
Get the Right Professionals on Your Team!
Navigating two countries' tax and legal systems is complex. Before you make any decisions, assemble your team:- A REALTOR®: (Like us at Vibe Collective!) We know the local market, procedures, and can connect you with other needed professionals.
- A Cross-Border Tax Accountant: Someone versed in both Canadian (federal and BC) and US tax law is crucial. They can advise on residency, tax filings, withholding, credits, and compliance in both countries. Need a tax advisor? Derrold Norgaard is a Chartered Professional Accountant with a specialty in international tax.
- A Lawyer: You'll need a BC lawyer experienced in real estate conveyancing. If remaining in the US or dealing with complex ownership/estate issues, ensure they (or another lawyer) have cross-border expertise. Need a lawyer? Leo Xiaopeng is a Victoria lawyer who specializes in immigration matters.
