Tax Implications of Non-Resident Investment in Whistler Real Estate

The Resort Municipality of Whistler, British Columbia is a truly unique, spectacular, and cherished vacation destination in Canada, which has attracted much foreign investment over the years.

For non-resident investors from countries all over the world – especially those who would like to defray their substantial cost by renting their property for most of the year – there are important Canadian tax filing requirements and other local intricacies that are often unfamiliar and therefore unadhered to.

It is critical for any non-resident investor in Whistler property to first identify themselves as one of the following three categories:

1. Renting On a Nightly Basis – Producing “Rental Income”
2. Renting On a Nightly Basis – Producing “Business Income”
3. Not Renting at All – Strictly Personal Use Only

1. Renting On a Nightly Basis – Producing “Rental Income”

This represents the most common non-resident real estate investment – whereby the property is often placed in a rental pool and administered by a property manager. Much like a hotel, it is rented out to guests on a short-term basis.

There is a 25% withholding tax requirement on gross rental income, which can be recouped in large part by filing a non-resident income tax return at the end of each year.

2. Renting On a Nightly Basis – Producing “Business Income”

“Business Income” from the property is very similar to what was described above (for producing “rental income”), with the following advantages:

• There are no withholding requirements on gross revenues (although there is a requirement to file a personal non-resident income tax return each year).
• There is an ability to carry back (for 3 years) and forward (for 20 years) any business losses incurred in a particular year to offset income (whereas losses from “rental income” operations incurred do not have a similar ability to be claimed).

Approval must be obtained in advance from the Canada Revenue Agency (CRA) to qualify for “business income” treatment by those property managers deemed to be operating as hotels.

The following Whistler area properties have received CRA approval to date:

• Westin Whistler
• Hilton Whistler
• Adara Hotel
• Whistler Village Inn & Suites
• Delta Whistler Village Suites
• Executive Suites Hotel & Resort in Squamish

3. Not Renting at All – Strictly Personal Use Only

There are no annual remittance requirements or filing options for those who purchase Whistler property for their own personal enjoyment and choose not to rent during the times that they are absent.

These owners should however endeavour (as all types of owners should) to keep all documentation to support any improvements, renovations, additions, or other large capital expenditures made throughout the ownership period. These are required in order to increase the tax cost base of the property reported on disposition which will result in less taxes owing.

Goods & Services Tax (GST)

5% GST is applicable and charged on any purchase and sale of commercial property, which includes for the purpose of producing either “rental” or “business” income.

It would therefore be in a non-resident purchaser’s best interest to be registered for GST purposes prior to the transaction closing date, which would allow GST to be waived on the purchase. If the purchaser is not registered at the time of closing, there is an opportunity to register subsequently – however GST will need to be paid initially, and then claimed back as part of the first year’s GST return filing.

GST on real estate is a complex matter which depends entirely on each investor’s particular situation.

For example, for a property to be considered as “commercial” (and therefore qualify for a 100% deduction of GST paid on the property purchase and annual rental expenses), it must be used all or substantially all (generally more than 90%) of the time for short-term nightly rentals. If it is used between 50% and 90% for rentals, then the GST paid on the property purchase and rental expenses would need to be pro-rated for personal use; and if the personal use is greater than 50%, then no amount of GST can be claimed back.

In a case where the purchaser is not renting at all, the 5% GST will only be charged on the purchase of a newly built home (used non-commercial housing, including townhouses and condos, is not taxable), or if it was rented by the previous owner. A purchaser of property used for personal purposes only cannot and should not register for GST.

Disposition of a Property

No matter which of the three investment categories applies, prior to and no later than ten days after disposition of a property, every non-resident investor will be required to submit Form T2062 (Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property), along with a withholding tax equal to 25% of the interim gain on sale (to be increased to 35% effective January 1, 2025).

Once form T2062 is accepted and the tax is paid, the CRA will issue a Certificate of Compliance.

CRA, who is ultimately concerned that a non-resident may sell their property and take the proceeds out of Canada without paying tax, effectively transfers the tax obligation from the non-resident vendor to the purchaser of the property.

All knowledgeable purchasers will therefore request a Certificate of Compliance when acquiring a property from a non-resident (whether or not the purchaser is a non-resident). As a general practice, the purchaser’s lawyer will hold back 25% of the entire purchase price (to be increased to 35% effective January 1, 2025) until the Certificate of Compliance is issued.

It is generally advised that all non-residents file a special income tax return to report the disposition of a property, given that in most instances there is a resulting refund of taxes paid.  Most often, due to the continual growth of property value in Whistler, a capital gain is calculated upon sale.

Effective June 22, 2024, the inclusion rate (that is, the % of a capital gain that is included in taxable income) for capital gains in Canada has increased from 50% to 67% (or 2/3) – however individuals are still subject to a 50% inclusion rate on up to $250,000 of capital gains annually.

Underused Housing Tax (UHT)

This imposes an annual tax equal to 1% of the assessed value of a property on “Affected Owners”.

In place since 2022, the UHT has been viewed as overly punitive towards resort communities such as Whistler and has resulted in much confusion for investors and tax service providers alike.

Intended to address the housing shortage crisis in Canada, it fails to consider the specific circumstances that exist here; that is, a necessary short-term temporary residency environment. This has led non-residents to make the difficult decision to sell their properties over the past few years.

Non-resident foreign investors (defined as not a Canadian citizen or not a Canadian permanent resident) who own residential property are “Affected Owners” and therefore have an automatic filing obligation (note that a $5,000 late-filing penalty will be assessed for any UHT return that is filed after the April 30^th deadline).

However, they may be excluded from paying UHT if one of the following exemptions are applicable. Examples of some of the exemptions that are more available to Whistler investors include the following:

Year of New Ownership

Owner acquired the property in the year and did not own that property at any time in the prior 9 calendar years.

Year of Owner’s Death

The personal representative or other legal representative of a deceased individual is exempt for the calendar year in which the owner passed away and for the subsequent calendar year.

No UHT is payable for the current or subsequent calendar year if the owner died in the current calendar year.

A Newly Constructed Property

A residential property owner’s interest is exempt for a calendar year if the property was not substantially completed by April of that year.

Property Not Suitable for Year-Round Use

Not suitable to be lived in year-round or seasonably inaccessible due to public access not being maintained year-round.

Uninhabitable Due to Disaster

Due to disaster or hazardous situations, the property cannot be inhabited for at least 60 consecutive days in the calendar year. Can only claim this UHT exemption for two calendar years with respect to the same disaster.

Uninhabitable Due to Major Renovations

Cannot live in the property for a consecutive 120 days due to ongoing major renovations. The exemption is only available once every 10 years.

Principal residence

Vacation property located in a prescribed location in Canada, and used by an individual owner, their spouse or common-law partner for at least 28 days in the year.

For additional information, see our blog post entitled Underused Housing Tax (UHT).

Tourism Whistler, along with stakeholders including realtors and politicians, are continuing their aggressive lobbying efforts with the Canadian government to create an exemption within the UHT legislation for tourist-zoned accommodations in resort municipalities such as Whistler.

Still Have Questions About Non-Resident Real Estate Taxes in Canada?

Manning Elliott LLP has advised over 1,000 non-resident rental property owners in Canada over the years, many of them who own property in Whistler.  We have provided professional assistance with real estate planning and reporting, property disposal, and minimizing Canadian tax on their rental investments in Canada.

Leverage our experience to help you plan your Whistler real estate investment and assist you with your filing requirements in a well-ordered and tax efficient manner.

Please contact Ted McLellan, CPA, CA, Partner, at our Vancouver office if you would like to obtain further information.

NOTE: Tax laws are complex and are subject to frequent change. The contents of this Manning Elliott article are not intended to represent legal or tax advice. Please consult your tax adviser before employing any strategies that may have been discussed within this article.