Benefits of a Canadian Agent for Foreign Residents In Real Estate

December 27th, 2017 · Tell Me What You Really Think Here · Property Management, Rental Property

We live in a Global environment, and with all this recent talk about Foreign Investors causing real estate prices to go up, people forget that there are a ton of  reasons for Non-Residents to have property here in Canada.

  1. Working overseas
  2. Falling in love
  3. Travelling
  4. Inheriting property
  5. Investing

About 20% of our portfolio is non residents at this time, not surprisingly property owners that are out of the country do need property management services. It just makes sense.

Most people don’t know what the benefits are of having a Canadian Agent, and since most of the non-residents we represent are Canadian by origin, they just leave the country and continue to collect their rents, in their Canadian bank accounts, maybe changing their address to a UPS mail box or their friends or family. No big deal right?

Declaring Yourself Non Resident

Most people are going abroad for love or money, and no one likes double taxation. At one point if you are working abroad, you will end up paying income tax in that country, and you won’t want to pay tax in Canada as well. So you tell Canada Revenue Agency that you don’t live in Canada anymore, and bingo you’re non resident.

What About The House ?

In most cases, the house is an afterthought, and being taken care of by a property management company or family or real estate agent. You may not want to sell because you plan to come back to Canada to live. In most cases, it’s not about the money, it’s about the ties to Canada. Many overseas postings are for 2-5 years and in some cases your employer covers the cost of moving and maintenance of the house in Canada. The house isn’t primarily an investment, it’s a your home.

The property management relationship should be a primarily custodial one, rather than wringing every bit of income out of the house, it’s about picking the lowest risk A+ tenants and keeping the house in good condition and… complying with Canada Revenue Agency rules about non residents.

NR-6 Getting a Canadian Agent

Technically, “NR6 Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty” is the form we fill out as your Canadian Agent, along with a spreadsheet with your property expenses, and then we pay 25% of your net income.

If you do not have a Canadian Agent, you are required by law to pay 25% of your gross rent to Canada Revenue Agency, then at the end of the year when you file your tax return, you get any monies overpaid back.

To illustrate the difference let’s take a sample condo, with a mortgage, Net Income will = $0 That’s right chances are that if your condo has a mortgage on it, you won’t have to pay a cent to Canada Revenue Agency in withholding tax because you have negative cash flow into the property.

However, taking a 2 bedroom for rent at $2000 per month, gross income would be $500 per month payable to Canada Revenue Agency, of course when you file your income taxes at the end of the year, you’ll get the money back. Obviously this can cause some cash flow issues.

Individual Tax Number

If you are actually from overseas, you’ll need an Individual Tax Number before you can get a Canadian Agent. This takes a while to get so you want to apply right away.

Complying is a Pain

I do not have a person dedicated to Canada Revenue Agency because my company is too small, however, I wish I did. Apart from the well documented issues with calling them, you send the forms in, wait 3 months, and hope for the best. Then you get a letter. Sometimes you don’t get a letter, then you have to call them. I’ve taken to both Faxing and Mailing forms. No one wants to know how the sausage is really made so I’ll stop right now, but I’ll tell you there is work involved.

Renters Are Also Required to Send 25% of rent to CRA

Weirdly Canada Revenue has compelled tenants to send them 25% of their rent. Obviously that’s not practical but it is the law. I really don’t know and have never heard of any tenants that actually do this. I’m not saying they don’t exist, I’ve just never heard of it.

We Act As Canadian Agents For Investors

We perform this service for property owners that hire us to manage their properties. We can not take the risk of providing this service if we do not receive the rents. As we look to continued growth of our company in the New Year, we will continue to comply with the rules and regulations of Canada. We’ve been in business a long time, and we prefer long term gain to short sighted speculative thinking. No one should be surprised if shortly in the future we all get word that Canada Revenue and Land Registry combine more closely to force compliance with existing tax laws.

Short Term Pain for Long Term Gain

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