Canada has done a great job at welcoming and accommodating foreign investors, evident by the fact that foreign investment is increasing at a very rapid pace. Although the country doesn’t impose any restrictions on foreign investors with respect to purchasing investment properties, there are some notable exceptions related to tax, mortgages, and legal requirements.

Foreign investors are prone to higher property or land transfer taxes and may also be exposed to higher capital gains tax when and if they decide to sell their investment property. Although the average Canadian pays 50% tax on the difference between the original purchase price and the sold price, foreign investors may actually be liable for greater rates in some provinces. Alongside higher income tax, foreign investors will also have to pay a higher property transfer tax. The average tax rate for a Canadian is half a per cent on the first $200,000 of the property’s fair market value and one per cent on the remaining value. Foreign investors, however, will have to pay one per cent and two per cent respectively. In addition to these tax rules, foreign investors will also be charged a 5% goods and service tax.

Despite the above taxes, however, it is important to realize that Canada has tax treaties with the US and many other countries – meaning you will not be a victim of double taxation.

Foreign investors also face unique circumstances when it comes to financing the purchase of their investment property. Although Canadian lenders will finance the purchase of a property by a foreign investor – they require a 35% down payment from foreign investors, compared to a 10% down payment required from Canadians. In addition to the higher down payments, foreign investors will also be subjected to increased interest rates with respect to their mortgage.

Obtaining home insurance can also be challenging for foreign investors, considering insurance providers are hesitant to insure investments made by absentee foreign investors.

The signing process related to the mortgage itself is also unique for foreign investors, considering lenders require foreign investors to be present during the signing of paperwork. If foreign investors are unable to be present at the time of signing the contract – a Power of Attorney must be appointed to sign the paperwork on their behalf. In order to successfully appoint a Power of Attorney, the foreign investor must either use a Canadian lawyer to draft up the authorization letter or a Canadian embassy – authorization letters issued by non-Canadian lawyers will not be accepted.

Unique legal requirements also exist when it comes to issuing payment for your investment property – payment must be made via a Canadian Certified Check or a Canadian Bank Draft.

Lastly, although most provinces allow foreign investors to purchase as much Canadian property as they desire, there are some exceptions. Manitoba does not grant foreign investors the power to purchase farmland; PEI only allows five acres of land to be purchased; Saskatchewan allows a maximum of ten acres; and Alberta allows two plots which cannot exceed 20 acres.

Sources: CRA, CREA, Canadian Buyers Guide

By: Amtej Dosanjh