Real estate is as safe an investment as the country it is in. To hedge against the uncertainty in the US markets, you might consider Canada.
The US real-estate market keeps getting complicated, and even affluent individuals are being priced out by generational real estate owners. Many consider Canadian land instead, but first, they need to know if they must move in order to buy land.
Americans can buy land in Canada even if they have never visited the country before. They just need to make sure they understand the special taxes that apply to real estate transactions done by foreigners.
In this article, you will discover all you need to know about buying land in Canada as a US citizen. It will also go over the pros and cons of Canadian land and the steps you need to take to become a landowner. By the end of this post, you will stop asking, "can an American buy land in Canada?" and will be ready to become an American who will buy in Canada.
Before you move forward with anything regarding Canadian land ownership, you must make a checklist featuring three letters. TLP, which stands for Taxes, Laws, and Procedure. As long as you're aware of these three, you're in a great position to buy Canadian land.
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What Do Americans Need to Know About Buying Land in Canada?
If you're an American who does not live in Canada, you are categorized as a non-resident US Citizen. The "non-resident" part and the "US citizen" part both have their advantages. As a US citizen, you can visit Canada without a visa and even stay in the country for up to 180 days. US citizens have the same land ownership rights as non-residents around the world: they can own land in Canada even if they don't live in the country.
However, there are specific taxes in high-demand areas like Toronto in order to reduce speculative investing. These taxes are beside the standard Canadian property taxes. Double taxation doesn’t happen all across Canada. It is usually limited to Toronto and residential property in the Greater Horseshoe Region (GHH).
It is crucial to understand the tax structure for non-resident land buyers because it can make or break a deal for you. Aside from that, you need to know that you can avail of bank loans and mortgages for sound property investment. Ultimately, the Canadian real estate market, including land buying, is similar to the US except with different taxation and mortgage rates.
Taxes for Non-residents Buying Canadian Real Estate
Canadian real estate speculation drives up the prices of residential property in certain areas. To prevent profit-driven non-resident investors from pricing out utility-driven resident buyers, the provincial government can levy specific taxes to make non-productive speculative purchasing unattractive. Here are some of the taxes you need to be aware of.
- Foreign Buyers Tax – 15% tax levied on the purchase of residential property in the Greater Horshoe Region. Applied on a provincial level to purchases by non-residents, including US Citizens.
- Non-resident withholding tax – 25% tax to be paid upon the sale of real estate by a non-resident. This tax is levied on a national level and is set at a flat rate across all types of real estate. It is meant to discourage rapid purchasing and selling of real estate in Canada as a form of short-term profit-earning strategy.
- Land Transfer Tax – Applicable at various percentages based on the local government. This tax is the same for the foreign investors and the residents alike. You might be able to legally dodge this tax if you’re buying real estate for the first time and can prove that you plan to use it as your primary residence. In other words, convince the tax collectors that you’re not a speculator.
Mortgages and Land Loans for Non-resident Real Estate Buyers
As you may know by now, a large portion of foreign investment in Canadian real estate is speculative. Non-resident Chinese and Saudi citizens own the bulk of residential property as a value-saving tool.
The mortgage market thrives when people use loans reasonably and generate a consistent enough income to pay them off. You’ll have an easier time getting a mortgage for an already constructed house than you would getting a land loan. Even for mortgages, the downpayment required is higher for non-residents.
Is Canadian Land Worth It for Americans?
Knowing the financial handicaps applied to non-resident investors, you might wonder if you should get into Canadian real estate. After all, being a US citizen doesn't provide any special perks.
Buying land in Canada is worth it only if you are planning to move to Canada. As long as you're a non-resident, your Canadian real estate has to appreciate over 25% for you to make any profit. Otherwise, you sell at a loss.
Still, there are a few benefits to owning land in Canada, which might make you want to proceed with the rather risky step anyway.
Advantages of Buying Land in Canada (For Non-resident Americans)
- Lower price point – Compared to US land, Canadian land can be cheaper. Of course, this does not apply to competitive territories where there is already too much speculation.
- Makes immigration easier – To an extent, being a landowner in Canada means you can get a visa and even permanent residence more easily. But given that Americans get visa-free entry into the country, it seems a slightly redundant advantage.
- Cheaper to build – Again, if you compare construction costs in the US and in Canada, the latter is cheaper. So if you’re looking to build on vacant land, it will be significantly more budget-friendly in Canada.
Disadvantages of Buying Land in Canada (For Non-resident Americans)
- 25% non-resident tax – Even though the property in Canada is cheaper than its equivalent in the US, the 25% tax you need to pay upon selling it can make Canadian land less lucrative as an investment tool.
- Hiring lawyers and accountants – You will need to avail of lawyers' and accountants' services in order to avoid penalties when buying land in Canada. This adds to the cost of doing business if the land investment is a tool for capital gains.
- Land loans are difficult to get – American banks are hesitant to hand out loans for investing in American land, so they aren't likely to award loans for purchasing real estate abroad. Canadian banks are more trusting of American investors but require them to put up more money upfront. The dollar amount to buy Canadian land might be lower, but the money you have to invest upfront can be higher in Canada.
All in all, Canadian land is worth it if you plan to move to Canada or believe the land will appreciate well over 25%. You can also acquire Canadian land as a non-resident and sell it after getting the resident status. In that case, the drawbacks of being a foreign investor do not apply to you.
Steps for Buying Land in Canada
Buying land in Canada seems complicated if you do not know the exact process. For US citizens, this is quite easy because they don't need to apply for a visa if they plan to visit the country. Here are the mandatory and optional steps you must take to buy land in Canada.
Find Undervalued Land-Own
The first step in buying land is finding out which land is within your investment budget and has more value or potential value than the price it commands. In Canada, this is usually the land that doesn't have a foreign buyers tax. Whenever there is a foreign buyer's tax, you can infer that the property is being overpriced because of too many speculators in the market.
Consult a Tax Agent and a Lawyer
The next step is to talk to a Canadian lawyer and a tax agent to understand the legal and financial consequences of the investment. You may also give power of attorney to the lawyer and buy the land through them, but this is not necessary. What is important is that you understand your legal rights and duties and the tax obligations of the acquisition.
Go Over the Paperwork and Acquire the Land
This is the final step that consists of regular back and forth, including proposal, counter-proposal, negotiations, and payment. You might go through several rounds of negotiation and finally settle on a price. The paperwork is drawn up by the lawyer and proofread by both parties' attorneys.
Once the agreement is signed and money is transferred, you can get the deed and become the landowner. While being on Canadian soil is not essential for buying land, it is better if you are present there in person. You can always handle the deal remotely, but land acquisition is a big enough deal to require at least one flight.
Americans can buy land in Canada, but the Canadian government doesn't seem too eager to incentivize these purchases. Unreasonable taxation and lack of rebates can make Canadian land an inefficient capital gains tool, making it a worthy purchase only for those who plan to move to Canada. For the rest, raw land in the US has far more potential.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling