INVESTING IN CANADA FROM ABROAD

Jayson SchwarzSenior Founding Partner, Schwarz Law Partners LLP

By: Jayson Schwarz LLM

With assistance from Evonne Finnegan LLB

Toronto was the “hottest” city in the world last year, among the growing number of rich and sometimes famous looking to purchase local real estate. According to Christies International Real Estate, a survey of luxury real estate Toronto saw a staggering 37% surge in high end residential real estate purchasers from so called high net worth individuals in 2014.

Thanks to factors such as the weak Canadian dollar, general economic stability, reliable banking system, facilities and systems available, excellent health care, Toronto came out on top for growth among highly desirable urban destination out of more than 80 global markets examined by Christies. Toronto was capitulated into the Top Ten “Best of the Best” cities in the world along with Dubai, Hong Kong, London, Los Angeles, Miami, New York, Paris, San Francisco and Sydney. Toronto home prices continue to soar with $1.04 million being the average house price.

For many investors the familiar with the cost of real estate in New York, London or Hong Kong this demonstrates that values in Toronto have not reached their peak by far.

What do you need to know about purchasing property in Canada and Toronto in particular?

First and foremost there is no restriction, for the most part on foreign individuals purchasing property in Canada unless it affects the national interest.

We need to examine certain issues:

Tax Treaties

Depending on your country of residence there may be an international tax treaty in place between your country and Canada. In that instance there will be provisions governing the effect of income earned on rental and sale proceeds of property in Canada. This translates into withholding tax and other questions being answered and allows you to avoid double taxation. This also facilitates you and your advisors because of the certainty being able to properly plan and structure your transaction.

Legal Structures

There are a variety of legal structures available to invest in real estate in Canada:

  1.     Real Estate Investment Trust. This is a trust established to consolidate capital for the purpose of investment in real estate.
  2.     Joint Venture.  Joint ventures are advantageous due to flexibility in allowing for varied and non-proportionate sharing of profits.
  3.     Partnership, Limited Partnership
  4.     Corporation.
  5.     Personal Ownership

In order to ascertain which structure is best for you, remember to always speak with a lawyer or accountant with expertise in real estate law and tax.

Harmonised Sales Tax (“HST”)

A purchase of new residential property in Ontario, by example, is subject to the payment of Harmonised Sales Tax of 13%. Rebates are available for resident Canadians that either will occupy the premises or rent them out. Non-residents do not qualify for the rebates.

Land Transfer Tax (“LTT”)

A purchase of new residential property in Toronto, by example, is subject to LTT from 2 levels of government, Municipal and Provincial and may be viewed as an average of about 1.5% each. For many of you this is seen as stamp duty. Outside of Toronto only the Provincial LTT is payable. Where LTT really kicks in for non-residents on a sale of property and it is prior to this time that you should have spoken with a lawyer or accountant with expertise in real estate law and tax to reduce or avoid withholding tax.

Real Estate Brokers:

Those who wish to dispose of or acquire real estate a qualified real estate broker to provide assistance is a necessity. Real estate brokers are subject to special regulation in Canada. In Ontario, the Real Estate Council of Ontario (RECO) is responsible for regulating real estate and administering the Real Estate and Business Brokers Act, 2002. A broker can assist in identifying a target for acquisition , preparing offers and negotiating the deal. Once a qualified broker understands his client’s requirements he has access to one of the best multiple listing services in the world and can quickly hone in on the correct property.

UK Investors, An example:

Tax treaties between Canada and the UK make Canada an attractive investment prospect for UK developers. Not least the 1980 Convention between Canada and the United Kingdom & Northern Ireland that prevents double taxation, exempts a resident of one of the contracting countries from Capital Gains Tax, when the tax has been paid, in the other country on the disposal of assets.

The Double Taxation treaty means that; subject to certain criteria, Investors will not be taxed on income tax has been paid on that income in one of the contracting states.  If tax rates are different in the two countries, you get credit for tax paid, and an adjustment if the tax in your home country is less than where you are earning the income.  A company resident in Canada which receives income from interest, royalties, pensions or purchased annuities from UK sources may be able to apply for relief from UK tax relief at source and vice versa. With the benefit of double taxation tax treaties, companies can take advantage of the booming real estate market in Canada.

Perhaps the most difficult part of writing these articles relates not the actual writing, but thinking of a topic to address. So help me!!! Mail, deliver or fax letters to to us, use the web site (www.schwarzlaw.ca), email ([email protected]) and give us your questions, concerns, critiques and quandaries. I will try to deal with them in print or electronic form.