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Updated on February 19, 2024
The death of a non-resident who owns real property in Canada raises several tax issues. What are they?
These issues are complex and involve various parties, primarily the estate executor, the heirs and the notary.
The following is an overview of the various steps that must be taken to ensure the proper settlement of the Canadian estate of a deceased non-resident.
Defining tax residence
The first issue is defining the tax residency of the estate in order to identify the resulting tax obligations. For example, when a non-resident who owns real property in Canada dies, the property is generally transferred to the estate. The tax residence of an estate is normally that of the designated executor. If the executor is a non-resident of Canada, barring exceptions, the estate is considered to be non-resident of Canada for tax purposes.
This is a key issue, as there are different tax obligations for resident and non-resident estates, and failure to meet these obligations could result in significant penalties.
Tax residence of the property beneficiaries
It is also important to determine the tax residence of the real property’s beneficiaries to accurately determine the tax obligations of the heirs and the estate when the property is transferred to the beneficiaries or the estate is settled.
Transfer to heirs or sale of real property
Upon the death of a non-resident, the estate has two options: transfer the real property to the heirs or sell it and redistribute the proceeds to them. This is an important choice, as the tax obligations differ not only according to the type of transaction contemplated, but also according to whether the beneficiaries are Canadian residents or not – which is why it is important to look at all the impacts before going ahead with the transaction.
Certificate of compliance request
When the real property is transferred to the heirs or sold, the estate or heirs may have to quickly file requests for certificates of compliance in order to notify the Canada Revenue Agency and Revenu Québec and pay any applicable taxes. The governments wish to collect taxes quickly in order to avoid potential defaults. This information is transmitted using the specified forms and must be sent to the tax authorities no later than ten days following the transfer or sale of the property.
The tax authorities will then issue a certificate of compliance, but only after the estate has paid the tax payable on the disposition of the real property. A non-resident estate or non-resident beneficiary that fails to take these mandatory steps may be subject to significant penalties.
Filing tax returns
The estate is also required to file a final tax return for the deceased to report a deemed disposition of the real property on the date of death and later file its own return, if required, to report the actual disposition of the property listed on the forms. It can then attach the certificate of compliance to the tax return.
As you can see, the death of a non-resident who owns a real property located in Canada entails complex tax obligations. This is why the role of an estate and international tax expert is essential. This expert can assist the estate liquidator, beneficiaries and notary to ensure that the estate is in compliance with the applicable tax provisions and can also ensure that each of the parties involved meets its tax obligations at every stage, from the death of the taxpayer to the settlement of the estate.
These can be complex issues. To avoid any unintentional omissions and to fully understand your tax rights and obligations, don’t hesitate to call on an expert for help.