What if non-residents immigrate to Canada & move into a rental property that they own?

The world is changing and so is life!  Non-residents who live in a foreign country may decide to immigrate to Canada for a better future.  What do they need to consider in regards to taxation for their Canadian investment rental properties they purchased in a prior year?

The Canadian Income Tax Act states that: “where a taxpayer becomes a resident in Canada, the taxpayer is deemed to have disposed of each property they owned except if the taxable Canadian property[1] is owned by an individual.”  The term ‘Taxable Canadian Property’ includes real property situated in Canada.

As referred to our other article “What non-residents need to know before investing in Canada’s real property”, there is a clearance certificate/withholding tax to complete when there is a disposition.  Therefore, if an individual who owns a Canadian rental property and immigrate to Canada, the deemed disposition would be fall under the exception.

Furthermore, another section of the Income Tax Act[2] says that “where a taxpayer having acquired property for the purpose of gaining or producing income (i.e., rental income), has commenced at later time to use it for some other purposes (i.e., move in as their home), the taxpayer shall be deemed to have disposed of it for an amount equal to its fair market value, which in turn applies to capital gains or losses and/or recaptured tax on previously claimed capital cost allowance on depreciable property (i.e., the rental property).”

However, an election may be available to allow the individual to elect out of the deemed disposition rule where the property becomes the taxpayer’s principal residence, provided the conditions are being met.  As a result of the election, if applicable, the recognition of any capital gain or loss accrued on the property during its income-producing years can be deferred until the property is actually disposed.

[1] 128.1(1)(b)(i) of the ITA

[2] 45(1) of the ITA

This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email us for further advice.