By Ruby Chouhan, Client Services and Business Development - Rental Division
In today's landscape, quite often our real estate properties are our largest investments - their ongoing protection and maintenance are crucial for long-term value. What happens if you own an investment property from afar? Are relocated unexpectedly? Or simply if you’re new to the Real Estate world? How will you maximize your property’s investment and management? While most property managers are capable of facilitating basic routine maintenance – as a non-resident your needs are more evolved, knowing how to safeguard against both structural and capital losses is key.
The Tax Man: A common issue is that many non-residents aren’t properly advised or aware of their tax withholding obligations, which then results in hefty penalties and loss of cash flow. For Non-Residents, the Canada Revenue Agency’s (CRA’s) tax withholding requirement is 25% of the gross rent. However, there are some options available to you: have a Canadian Agent such as your Accountant undertake an NR6 filing and remit 25% of the net income to CRA, this is a much more palatable option then remitting 25% of the gross rent each month. This option allows you to free up cash flow in the interim rather then waiting to prepare your income tax return for the subsequently assessed refund.
A second and vital item to consider is whether you have elected to file the appropriate income tax return for the rental income earned as a non-resident versus being a resident of Canada. A benefit to non-residents is the number of expenses that are tax deductible, for example. mortgage interest, property taxes and others.
If you’re unsure about your residency status an option is to enlist your accountant to review your ties to Canada in order to determine your position.
A little known fact: if a tenant pays their rent directly to a non-resident landlord, the tenant becomes the “Payor” and could be held liable to the CRA for 25% of the gross rents should they ever be audited. The same is true for a property manager collecting rents and distributing rental income the property owner. Again, any non-resident found by the CRA not complying with the above withholding tax requirements may face penalties, it’s essential to discuss your tax obligations with a firm that specializes in cross border tax matters.
Insurance: Securing adequate and the appropriate type of insurance coverage is necessary, as well as advising the insurance company of the tenancy or vacancy status of your home. When properties are either vacant or tenant occupied, often by mistake homeowners continue to keep their original “Homeowner-Occupied” policy in place. Unfortunately, if there’s a claim most insurance companies will likely refuse to honour any claims since the right type of policy isn’t in place. If your property is tenanted, then you must switch your home-owner policy to one that insures “Rented Dwellings” or “Rented Condos”. If your property is to remain vacant then make sure to discuss the situation with your insurance broker to avoid any potential coverage issues.
Vacant Inspections: For a home that’s vacant it’s important you have someone visit the property frequently, most insurance companies recommend every 48 hours. During each visit the following items should be checked: that the property is secure, mail and flyers are removed from the mailbox, and as the season dictates that heating is on, lawn care, snow removal, etc. Essentially you want to ensure the security of your home and that it never looks vacant or abandoned.
Leasing Your Home: Finding good tenants is fundamental to your peace of mind. When screening future applicants it’s necessary to conduct a credit check, do not rely on copies of credit reports - they could be doctored. Also, while you may be in receipt of an employment letter, make sure to confirm employment status with Human Resources or a Manager. Let’s not forget conducting a landlord reference – ask if rent was always paid on time, whether there were ever any damages to the property, and if your potential tenants have provided adequate notice to vacate. This will give you a good understanding of the type of person who may be living in your home.
The above tips are only a few noteworthy items in the realm of managing your property, anything can happen at any time of the day, or night – when it comes to your largest investment, working alongside industry experts is key. As with all partnerships, finding your team of experts is all about fit. Ask the right questions, and if you’re still unclear, ask more!
*As tax implications vary with each individual's specific circumstances, professional tax advise should be sought before acting on any information provided in this article.