Answer ... (a) What taxes are levied and what are the applicable rates?
Provincial transfer taxes are payable when land is transferred for consideration. Some municipalities, including the city of Toronto, also impose a transfer tax. The rates vary from approximately 1% to 2%. Alberta and Saskatchewan do not charge land transfer tax.
Municipalities levy annual property taxes, which include education and other taxes; the rates vary widely depending on each municipality.
If there is a capital gain on a disposition, capital gains tax will be paid, unless a person is a resident of Canada and the principal residence exemption is claimed on it. Non-residents are subject to capital gains tax on Canadian real estate which is considered taxable Canadian property under the Income Tax Act at the same rates as Canadian residents, subject to an applicable tax treaty.
If a non-resident disposes of Canadian real estate, the non-resident must obtain a clearance certificate; otherwise, the buyer will be liable to pay 25% (and in some cases 50%) of the purchase price to the Canada Revenue Agency. The buyer can withhold that amount on closing, subject to any applicable tax treaty.
Rental income must be reported and will be treated differently depending on whether it is considered rental income or business income. If a non-resident owns a property which earns rental income, 25% of the gross property rental income must be remitted each year. An election can be made to pay 25% of the net rental income after expenses, by filing an NR6 form.
(b) How is the taxable base determined?
Land transfer taxes are generally based on the amount paid for the land, but in some cases may be based on fair market value. Provincial and municipal transfer taxes are generally based on the fair market value of the property at a marginal tax rate. The base for annual property taxes varies and is based on the assessed value by the municipality. Property tax includes the municipal rate and the education rate. The municipality determines the revenue it requires and then fixes a rate to raise the required revenue. Many have moved to property assessment based on fair market value. With regard to taxation of capital gains, see question 2.4(b).
(c) What are the relevant tax return requirements?
See question 2.3(c) for personal income tax with regard to reporting capital gains.
Land transfer taxes are generally payable when the land transfer is registered together with the filing of prescribed forms. In general, there is no tax return filed for annual property taxes, which are direct taxes levied by the municipality.
(d) What exemptions, deductions and other forms of relief are available?
With regard to rental income and capital gains, see questions 2.3(d) and 2.4(d). With regard to land transfer taxes, there are often exemptions depending on the province or territory. For example, in British Columbia and Ontario, first-time homebuyers may be eligible for a refund of all or part of the land transfer tax; and in Prince Edward Island, they pay no land transfer tax. In Ontario, there are also exemptions for:
- certain transfers between spouses;
- transfers from an individual to his or her family business corporation;
- transfers of farmed land between family members; and
- the transfer of a life lease from a non-profit organisation to a charity.
Deferrals may be available when land is transferred between affiliated corporations.
Certain exemptions may also be available for annual property taxes. In Ontario, lands owned by certain charities and non-profit organisations for the relief of the poor and certain types of affordable housing are exempt. There are also property tax rebates for:
- charities paying property taxes as tenants;
- a property that houses one or more disabled people or seniors aged 65 or older; and
- property owned by government bodies.