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GST on Residential Real Estate

Tax Question:

How is the Goods and Services Tax/Harmonized Sales Tax (GST/HST) applied to residential real estate?

Facts:

In real estate, the beneficial owner of the property has the responsibility to collect GST/HST and remit it to the Canada Revenue Agency (CRA). If the property is held “in trust” by another corporation or entity, the beneficial owner is still required to register and file GST/HST returns. It is common for third parties such as agents or property managers to be designated to collect GST/HST on rental income. There is a special election that allows agents to remit the GST on behalf of the owner, but the responsibility is still on the beneficial owner.

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Disposition of Property by Non-Residents

Tax Question:

What are the tax rules for the disposal of property by non-residents?

Facts:

If a property owned by a non-resident is sold in Canada, then it is subject to Canadian tax. A non-resident must file a Canadian tax return to report the sale and calculate the amount of taxes owing. The risk is on the purchaser (not the seller) as Canada Revenue Agency (CRA) will try to collect tax from the purchaser if the tax is not handled appropriately at the time of the sale.

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Tax Obligations for Foreign Real Estate Holdings

Tax Question:

What are the tax obligations for holding foreign real estate?

Facts:

If a Canadian corporation holds foreign real estate, there are certain reporting requirements:

  • A T1135 return must be filed if you own property with a cost of $100,000 Canadian dollars or more.
  • If a Canadian corporation owns 10% or more in shares of a non-resident corporation (foreign affiliate), then there is a requirement to file a T1134 return.

These reporting requirements are just information returns. Any additional tax liabilities are reported on corporate or personal tax returns.

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Change in the Use of Real Estate

Tax Question:

What is the tax treatment for change in the use of real estate?

Facts:

In real estate, it is common to change the use of property from income-producing to some other purpose such as personal use and vice versa. When a change of use does occur, the property may be deemed disposed of at fair market value. There are different types of changes in use that will be discussed further and their respective tax consequences.

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Capital Cost Allowance for Real Estate

Tax Question:

What tax issues arise with capital cost allowance related to real estate?

Facts:

Capital cost allowance (CCA) is the tax term in Canada for the deduction of amortization on capital assets. There are separate classes of CCA for property, plant and equipment and different rates that apply to each class. There are some specific rules for claiming capital cost allowance related to real estate.

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