Now that the elections are over, it’s time to get back to our normal lives and seriously realize that the sun has come up once again. But if you are one of the disappointed voters who still can’t get a grip of the election results, thoughts of relocating to Canada may be rampant through your mind.
However, there are quite a few things that you should keep in mind before making a life-changing decision such as this. This is especially true when it comes to understanding how to buy real estate in Canada.
Great Things About Canadian Real Estate
One of the many great things about buying real estate in Canada is the wide range of geographical locations that are available. Whether you love quiet walks along the beach, the tranquility of the Rocky Mountains, or the hustle and bustle of a North American city, Canada has a solution for everyone.
This array of diversity encompasses various real estate markets, and home values can be as far apart as the east is from the west. Nonetheless, feeling good about the area where you’re going to live is important, as is being able to sustain your lifestyle. But there are a few other things that you need to be aware of before making your way to the Canadian border.
(Please note that the comments contained on this page are for information purposes only and do not constitute legal or tax advice)
Tax Free Primary Residence
Unlike many other parts of the world, Canadian residents are blessed with the freedom of not paying an income tax on the amount that their primary residence appreciates during their ownership.
When buying a property in Canada, every province has their own rules about how much land transfer taxes must be paid after a transaction. This amount varies depending on the province and the value of the property, but typically a buyer is going to be paying a premium of 0.5%-2% on top of the purchase price. However, Alberta is one of the rare provinces where there isn’t any land transfer tax nor a provincial sales tax.
Sales taxes typically don’t apply to pre-owned homes, so you don’t have to worry about budgeting for them. Sales taxes only come into effect when you are buying a newly built home or land. Even if the sales tax applies, it has to be incorporated within the advertised list price of a home.
Opportunity for Market Appreciation
On the other hand, cities like Calgary have seen home values stagnate for several years due to the ongoing challenges in the oil industry.
It’s important to learn about how real estate markets are different from one another so you can try to identify which are poised to appreciate in value and which are headed towards a downfall.
Similar Real Estate System
Real estate agents in Canada work in a very similar way to what people in the US are accustomed to. Every home seller and buyer can choose to have their own REALTOR® to represent them. The benefits of working with a real estate agent are many, including the fact that they look out for the client’s best interests and handle the fiduciary duties of the transaction. Canadians also utilize the benefits of the MLS® listing system, which means that you can do a great deal of research online about available homes for sale. In just about every real estate market you can find free access to view homes for sale to familiarize yourself with the current housing market.
Great Return for Your Dollar
The US dollar has been a bright star recently, which makes everything much cheaper outside the border. As of today, for every 1 USD, you can get 1.35 CAD. That is a whopping 35% extra buying power compared to only a couple of years ago. In other words, you can either buy the same house for 35% less or you can purchase something better because of the strength of the US dollar.
Things to Watch Out for When Buying Real Estate in Canada
Since I am a Canadian, I personally think that living here is a huge privilege and we are truly blessed by the many opportunities that this country provides for us. When it comes to the “American Dream,” most people focus on everyone being able to own their own home. Fortunately this is something that can be easily achieved just north of the border. However, when it comes to the home buying process in Canada, there are some subtle differences that you need to be aware of .
No Escrow Companies in Canada
Most Canadians really don’t know what an escrow company is, yet thousands of real estate transactions successfully close across the country every day. No need to panic now!
Both the buyer and seller will need to hire their own real estate lawyer/attorney to make sure that the terms of the purchase agreement are satisfied. Unless there is a substantial breach of the details laid out in the purchase agreement, the two lawyers are legally obligated to complete the closing of the sale.
The seller’s lawyer must make sure that any encumbrances, such as registered mortgages, caveats, etc., are removed from title. The buyer’s lawyer must transfer the agreed upon purchase price on closing day. In cases where there is a minor problem with the condition of the property, the buyer is still legally bound to pay the full purchase price. To find recourse, they can seek compensation for damages they incurred at a later date.
A Matrimonial Home is Sacred
When a married couple purchases a home in Canada with only one name on the title, it is deemed to be a matrimonial home if they resided at the property for at least one night. It is important to know that regardless of whose name the title is registered in, a matrimonial home is always equally split between the married couple and fully inherited by the survivor. To avoid an entanglement down the road, prior to making the purchase it is recommended to draft a legal agreement between the married couple to establish the rights of ownership.
Withholding Taxes Apply to Non-Canadian Residents
While recognized residents of Canada enjoy not having to pay any income taxes on the amount by which their property appreciates, at the same time, the Canada Revenue Agency has a biased attitude towards foreigners walking away with tax free capital gains.
The only way that the government can take control to get their share of taxes is by not allowing real estate lawyers to disburse 25-50% of the sale price until the seller has received confirmation from the Canada Revenue Agency or a clearance certificate showing that all property taxes have been paid.
More Taxes to be Aware of!
Some parts of Canada, such as the Greater Vancouver Area, have experienced rapid growth of foreign investors in recent years. Due to the resulting high demand, prices have escalated so much that local residents could not afford to get into the market anymore. To dampen the appetite of foreign investors and mitigate the risk of a real estate bubble, the B.C. government introduced a new tax, which imposes an extra 15% land transfer fee for foreign buyers. Additionally, the City of Vancouver is planning on taxing non-primary residences that are not occupied year-round to encourage homeowners to rent out their properties.
Another important detail that must be kept in mind is that applicable taxes payable on capital gains cannot be deferred in Canada on the sale of a property. Once you sell a piece of property that generated a profit, described taxes will need to be paid to the government, even if you purchase another property right away.
Final Thoughts about Moving to Canada
Even though Canada is located closer to the North Pole and there is less daylight during the winter, the sun still shines every day, regardless of the US election results! Canada is a fantastic country and truly welcomes everyone from all parts of the world. Canadians consider their U.S. neighbours to be their best friends (or the big brother who we can count on every time).
It’s been a true pleasure for me to compare some of the differences of our countries, and yet realize during the process all the similarities that Canada and the US share. No matter how you decide whether you are going to make Canada your new home or remain where you are, it’s important to know what you can expect so you can prepare.
And if by a remote chance you decide to move to Calgary, AB, be sure to look me up!