Investors Guide to Canada

The Purchasing Process

When buying a unit in a new development in Canada, the process follows a similar format to other investment markets around the world. The real estate market in Canada has virtually no restrictions to foreigners, yet a representing solicitor will be able to advise whether the property to be bought complies with all of the legal requirements.

If requiring financing to purchase a Canadian property, it is advisable to receive pre-approval before beginning the purchase process. The holding deposit on both re-sales and new developments is normally around CA$2,000 or up to 5% of the purchase price.

The initial payment for a new development is usually around 10%, minus the holding deposit. The following payments will be outlined in the private purchase contract, along with the requirements of the buyer and seller throughout the construction process.

Prior to completing the sale, the associated purchasing costs and the remaining payments will be handed to the solicitor. Once all of the payments have been made, the title deeds will be transferred and the keys to the property will be handed over.

Purchasing a re-sale property in Canada has a slightly different process to other markets. A written letter of intent to purchase is created, outlining all of the stipulations relating to price offer, inspections, financing, dates and so forth. The letter is then followed by any rejections or counteroffers until an eventual agreement is met between both parties.

Fees & Taxes

Property transaction costs are very low in Canada, with the total costs amounting to between 1% and 3% of the property purchase price. In contrary to this, the taxes in Canada are quite high, with rental income being subject to a fixed 25% tax.

Canada does not impose real estate tax or inheritance tax, although non-residents are liable to pay taxes on their net income, along with an additional surtax of 48%. An Estoppel fee of $100 is applied for obtaining the certificate on apartments, although this charge is not applicable in Quebec.

The Goods and Service Tax (GST) is charged at 6% and is often included in the purchase price of property. Capital gains tax exists in Canada, although only 50% of the earnings are liable for taxation.

• Land transfer taxes are between 0.5% and 2%
• Estoppel Certificate Fee CA$100
• Legal Fees between 0.5% and 1%
• GST often included in the purchase price is 6%
• Land transfer tax is between 0.5% to 2%
• Rental income tax is a fixed fee of 25%
• No inheritance tax
• No real estate tax

Financing the Property

As the Canadian property market is well established, an extensive range of financing options is available to buyers of most nationalities. Along with conventional financing options from banks and credit societies, several independent facilities offer property financing options. The huge variety of options available enable buyers to compare services, settling for a loan option best suited to the individual.

The stability of the mortgage market in Canada has been assisted by the restrictions place to ensure against excessive lending. As a guide, the total mortgage payments should not exceed 40% of the gross annual income. Due to this restriction, proof of income will always be required when applying for a mortgage. The classifications for income clarification can include pensions, rentals and investments, along with the earned income.

The details and restrictions of loans and mortgages will vary between providers, with some private companies able to negotiate terms for their clients. As an example, the guidelines for mortgages include the following:

• Maximum 70% LTV
• Minimum loan amount CN$50,000
• Up to 25 year repayments
• Loans are available in Canadian Dollars only
• Variable and fixed rate loans are available
• Interest rates are around 6.5%

More about overseas property finance

Visitors Guide to Canada
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