Peter B. Smith, CPA, S.E.N.C.

An individual owning capital property in Canada but a resident for tax purposes of another country is subject to Canadian income tax upon the sale, transfer or deemed disposition of this property. Capital property is immovable land and buildings such as cottages, summer homes or vacant land. The non-resident before they can sell or transfer the property must request an authorization certificate from the tax authorities in Canada before the property can change hands. To complicate the process further will be the relationship that exists between the parties. For example a transfer involving a direct sale between non related individuals will have a transfer value considered to be at a fair market price, as negotiated between buyer and seller. A transfer between related individuals however will require greater care and must establish a fair market value. In this case a statement establishing the fair market value should be obtained from an independent qualified appraiser. Many of the transactions by non-residents are cottage properties and quite frequently they are to related individuals. The family cottage can not just be handed down to the next generation without significant tax consequences. Also a non-resident can not simply give the property away, either by will or while alive, and expect to avoid tax on the transfer. Another area of concern involves divorce. Should one spouse transfer their undivided ownership interest to the other, as part of a divorce agreement, non resident tax may be assessed. In this case because the individuals are non residents they can not use the rollover provision that allows a tax free transfer to the receiving spouse. Therefore divorce will attract the same tax consequences as a transfer to a related individual. Great care should be taken in such a transfer with respect to drafting a divorce agreement between non residents when Canadian property is involved.