What’s Your Tax Issue? – Taxable Quebec Property

The Tax Issue:

If I were to be a Canadian non-resident living in the Caribbean and I have rental property in Quebec, besides filing a federal tax return for Electing under Section 216, do I have to file anything for Quebec?

The Answer:

Part XIII of the Canadian Income Tax Act provides for a 25% withholding tax on rents paid to non-residents. As explained in an earlier post, an election under section 216 can be made whereby the non-resident pays tax under Part I, effectively replacing the 25% withholding tax with the normal income tax on rental income, net of expenses.

Quebec, which collects and administers its own income tax, does not levy withholding tax on rents paid to non-residents. Therefore, no Quebec tax return is required during the time you own the property and collect rents.

However, property situated in Quebec is considered to be “Taxable Quebec Property”, and is subject to withholding tax upon the sale of the property. Similar to the rules under section 116 of the Canadian law, the Quebec Taxation Act (Section 1097) provides for a 12.875% withholding tax on gains derived from property situated in Quebec. If a clearance certificate is not obtained (Form TP-1097), the 12.875% is levied on the full sale price.

In the year of sale, you will have to file both federal and Quebec income tax returns in order to report the sale and (possibly) recover a portion of the withholding tax.

Leave a Reply

Your email address will not be published. Required fields are marked *