Tax implications of Whistler Real Estate...

Real property in Whistler Resort is taxed by the local authorities, depending on the assessed value of the land and buildings.  If the owner of the property is a local resident and the home is classified as a principal residence, some grants (discounts) apply.  If the Whistler property is owned by a non-resident, these grants do not apply.

If the Whistler real estate will be used as a rental home, other taxes apply as well.  Income tax on revenues will be attracted by renting out the home.  In addition, GST (goods and services tax) will apply in certain situations.  Click here for more on Whistler real estate taxes...

As with any taxable situation, it is advisable to consult with an accountant or tax planner who knows the ever-changing tax laws in British Columbia and Canada.

Minimize taxes on Whistler real estate rentals...

Article Provided by Doug Fox, BDO Dunwoody, doug_fox@whistlernet.com.

Non-residents who earn rental income in Canada are subject to tax.  Canada Customs and Revenue Agency (CCRA) is the federal authority that administers the rates, payment and collection of income taxes. 

Income tax is calculated separately from other taxes such as the Goods and Service Tax and Real Property Tax.  Income tax is calculated for each taxation year.  The taxation year for individuals and certain other entities begins January 1 and ends December 31, and for corporations it is their financial year end. Generally the owner(s) of the rental property are considered to earn the rental income and are taxed accordingly. 

Tax on rental income earned by a non-resident must be calculated and withheld from the rental payments, by the payer or creditor of the rental income.  The payer or creditor of the rent is normally a tenant or property manager. The non-resident withholding tax is 25% of the gross rent and is calculated monthly. Gross rent is the rental income before any expenses such as management fees or utilities, have been deducted. Each month, the tenant or property manager must remit to CCRA, the amount of non-resident tax that has been withheld. The tenant or property manager must also complete form NR4 at the end of each taxation year and provide copies to CCRA and the property owner. Form NR4 provides information about the gross rental income earned and the amount of non-resident tax withheld. It is important that non-resident owners provide form NR4 when having a Canadian income tax return prepared.

After the end of a taxation year, where a non-resident has earned rental income, the non-resident may elect, but is not required, to file a Canadian income tax return in regard to the rental income and expenses for that taxation year.  A Canadian income tax return filed by a non-resident to report rental income is often called a section 216 return. By filing a section 216 return, the non-resident may deduct certain expenses from the rental income to arrive at taxable income, and then calculate tax in a manner similar to a resident of Canada. The amount of tax calculated when a section 216 return is filed, will usually be less than the amount of tax that has been withheld and the non-resident would be entitled to a refund of the excess tax.  For any taxation year that a section 216 return is not filed by the non-resident, the amount of tax withheld by the tenant or property manager will become the actual amount of tax for that year. A section 216 return for a taxation year must be filed within two years of the end of the taxation year. CCRA will not accept late filed returns. If the payer or creditor of the rental income has failed to withhold the correct amount of non-resident tax during a taxation year, CCRA may assess the non-resident owner for the tax directly at a later date. Ensuring that a section 216 return is filed for each taxation year that rental income is earned, will remove the possibility of being assessed the full 25% non-resident tax at a later date.

Form NR6 

As the amount of tax to be withheld by the tenant or property manager is significant and may impair the necessary cash flow from a rental property, there is an option to reduce the non-resident withholding tax. The option is effected by filing form NR6 with CCRA. This form is a joint undertaking by the non-resident owner and the tenant or property manager, that a section 216 return will be filed within six months of the end of the taxation year and that the tenant or property manager will remit the full amount of non-resident tax if the section 216 return is not filed. Form NR6 when accepted by CCRA, will reduce the amount of non- resident tax to be withheld from, 25% of the gross rent, to 25% of the net rent. Net rent is the gross rent less certain expenses such as management fees and utilities. The tenant or property manager must continue to withhold the full amount of non-resident tax until CCRA sends approval of the NR6 form filed. Approval from CCRA may take several weeks or even months.

An NR6 form must be filed for each new taxation year and separate forms must be used for joint owners. It important to note that the section 216 return for a taxation year where an NR6 has been filed and accepted by CCRA, must be filed within six (6) months of the end of the year, not within two years as described earlier. Failure to file the section 216 return within the required time will result in CCRA assessing the full amount of non-resident tax, none of which will be recoverable by the non-resident. Late filed section 216 returns will not be accepted by CCRA.

Preparation of section 216 returns

To prepare section 216 returns, the following information is generally required:

Receipts are not required to be filed with the tax return, but must be kept and may be requested by CCRA. 

Fax copies of the information are acceptable. 

Goods and Services Tax (GST)

GST Charged on short term rental accommodation

The GST is a 7% tax that is charged on most goods and services, including short term rental accommodation, purchased in Canada. Businesses that are registered for GST purposes, collect the tax on sales and pay the tax when purchasing goods or services that the business consumes. Periodically, the business must file a GST return with CCRA, and report the amount of GST collected on sales and paid on purchases during the reporting period. The GST collected less GST paid during the reporting period must be remitted to CCRA. The result is that a business registered for GST purposes, collects the tax for CCRA and obtains a refund of GST paid on costs incurred during the operation of the business.

Where a non-resident owner engages a property manager to rent the property on a short term basis, the non-resident may normally elect, but is not required, to register for GST purposes. The property manager usually collects GST charged on the short term rental, but cannot claim a refund of the GST paid on expenses directly related to an owners property. Such expenses would include cable, telephone and supplies. If the owner is a registrant for GST purposes, a refund could be claimed for the GST paid on the expenses directly related to their property. A registered property owner would be required to file GST returns in order to receive a refund. The reporting period for non-residents who have registered for GST purposes and are earning rental income is normally the same as the taxation year for income tax purposes and requires filing a GST return each year.

The books and records accounting for the GST are normally required to be kept in Canada. A request may be made to CCRA, to keep the books and records outside of Canada, however the owner will be assessed for all travel costs if an audit is required.

GST paid on purchase of capital real property

The GST paid on the purchase of Capital Real Property can be recovered in full or partially in two ways. 

If the purchaser is a registrant at the time of purchase, the purchase and applicable GST may be reported on the purchaser’s GST return . The vendor is then not required to collect the GST on the sale price.

If the purchaser is not a registrant on the completion date, the GST must be collected by the vendor and remitted to CCRA. At a later date, the purchaser may register for GST purposes and claim a refund of, the lesser of the GST paid on the purchase price and the GST calculated on the fair value of the property at the time of registration.

Owners must be aware that the ITC’s for GST paid on the purchase price and rental expenses, must be prorated if the commercial use of the property is between 50% and 90%. No ITC’s may be claimed if the property is used for more than 50% personal use. Any change of use of the property in later years, may result in repayment or a refund of ITC’s. This adjustment will be based on the fair market value of the Capital Property at the time of the change of use.