Canada is fast becoming a highly sought property investment location for Americans for various reasons; these include: Business start-up incentives, high-quality education and medical facilities (including free use of these), excellent employment opportunities (especially through skilled worker immigration laws), a stunning landscape, and—of course—property investment incentives.
As to how easy it is for an American to buy property in Canada, the short answer is very easy. However, there are restrictions, some of which might be off-putting, but clearly not enough for non-residents.
What does the law say?
Ultimately, it’s the law that you should be focusing on and how it might apply to you as an American. To give you a brief reference point it’s worth considering these points if you’re looking to buy a property and live in Canada for these time frames:
- less than 6 months of the year, there’s no need to apply for residency
- otherwise, you need to apply for immigration and permanent residency
If you’re looking to rent your property out, then you don’t have to live in Canada at all; however, you will be required, by law, to pay a 25% withholding tax (see more on taxes below) on your income.
It sounds straightforward on paper, doesn’t it? Things are never that simple, though, and there are further hoops and hurdles for you to get through before you can be a property owner in Canada, which need to be explored in further detail, namely:
- Mortgages; and
Please note: If you are looking to immigrate to Canada, there are specific programs and means for you to approach this. Investing in Canada through buying a property is not going to make the process easier, although it will improve your net worth, which is a factor that some immigration routes require. Canadian immigration laws, even as an American, are very strict and lengthy but worth exploring in further detail.
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Applying for a mortgage in Canada as an American is very achievable, although there are some differences compared to if you were a Canadian citizen. Here’s a handy checklist of the requirements and more detailed information:
- 35% downpayment
- Bank reference letter
- 3 months of bank statements
- Credit check with Canadian reference agencies
- Verified income via your employer
Quite naturally, the Canadian government favors their citizens, who can typically achieve a 90% or 95% loan-to-value mortgage, and thus a downpayment of only 10 or 5%. Immigrants, however, will need to pay 35% upfront to gain a 65% mortgage.
The funds for the upfront payment need to come from a Canadian bank account, and they normally need to have been in situ in that account for at least 30 days.
The good thing for Americans—regarding mortgage interest rates—is that, due to there being a tax treaty with Canada, they’ll be able to access the same interest rates as Canadians. If this treaty weren’t in place, they’d be restricted to a fixed rate.
A bank reference and credit check
Americans need to have a sound and stable relationship with their bank, for the bank will need to provide a letter of reference. If you have a dogged history and are not viewed to be financially stable, then this reference letter might not be achievable.
Similarly, you will also need to go through Canada’s credit reference checking process—international credit checks will apply, too, and so trying to escape America’s credit system by buying a property in Canada is not a way out and the route to a fresh credit start.
As is the case with Canada’s immigration laws, your employment history will play a vital part in the process of buying a Canadian property, and so your employer will need to draft a letter to verify your income, and your bank will need to confirm your 3 months worth of bank statements.
These may not be scrutinized in detail but are likely to confirm your identity, verify that your employment history and working situation are what you claim them to be, and prove that you’re a legitimate citizen and that you have an income to meet mortgage repayments.
Please note, if you are self-employed, then you will need to be able to provide necessary financial statements to apply for a mortgage. This may be more difficult than if you were an employee since you’ll need more detailed evidence of your financial situation. If you’re a start-up and are currently making a loss or low levels of profit, perhaps now isn’t the right time to approach property investment in Canada.
Along with applying for a mortgage, you’ll need to think about, plan, and account for the various tax impacts of buying a property in Canada.
The Canadian tax system—with regards to overseas property investors—isn’t in force to dissuade Americans but is a means of raising more income for the country, reducing the need for borrowing, and increasing the country’s prosperity. Let’s face it, Canada is a stunning country to live in, however, be expected to pay more tax than if you were a Canadian citizen, which makes applying for Canadian citizenship even more appealing.
The exact taxes and their rates will vary depending on the province you’re looking to purchase a property in, and so for this purpose, I am focusing on the city of Toronto—for that is where my expertise lies.
Here is a quick view of the relevant taxes you need to be aware of in the Greater Toronto Area:
- Non-resident speculation tax: This is a 15% charge that is payable on the purchase of the property.
- Land transfer taxes: The rate of this depends on the value of the property, and is split between a provincial and a municipal rate.
- Property taxes: Since this again can vary depending on the specifics of your property, this is an excellent reference point to consult to confirm the applicable tax amounts.
- Income taxes (if renting): You’ll be taxed as if you were a Canadian resident, but you will also be subject to a Withholding Tax. If you sell the property, then you need to be aware of Capital Gains Tax and any other relevant US taxes that apply for overseas investments.
The seeming lack of barriers to an American buying a property in Canada makes it a very attractive investment decision, especially due to the geographic proximity.
While there’s not a massive amount of extra factors to take into account compared to if you were buying a property in America, please make sure you do your research upfront based upon the above information. Also, be sure to network with a Canadian realtor, who will help you with your property purchase and put you in touch with any professionals that can speed up the process.
This isn’t a decision to rush into, so be sure to carry out your due diligence, and make sure you have everything in place—documentation and finances, especially—before you venture down the road of buying a property in Canada.
Moni Raad is Editor in Chief at On The Move Toronto, a blog that covers relocation, immigration, and moving to Toronto. She is an entrepreneur at heart who successfully founded and operated several businesses over the years. After immigrating to Canada in 2008, Moni wanted to share her first-hand expertise on how to immigrate, settle-in, and make Toronto home for all the newcomers and people aspiring to immigrate to Canada.