Ask any global mobility manager, and he or she will tell you that the more complicated aspects of employee relocations are home sale and relocation benefits. Throw in a border crossing, and you have yourself a whole new headache. If you aren’t outsourcing this aspect to a company that understands all the rules and regulations, compliance can become an issue.
But wait, we’re just talking about Canada - isn’t that like a move to the U.S.?
Or for those of you in the U.S. reading this - isn’t it just like a state-to-state move?
Are the laws in Canada similar to those in the U.S., or are there differences? What are those differences?
Canada’s policies are typically very similar to those in the U.S., with the most significant differences being actual expenses reimbursed for real estate transactions (including pre-payment penalties, which are common on Canadian mortgages) and the taxes associated with the policy components (many of which are actually not taxable if related to a relocation).
Here are the top 10 tips about home sale transactions in Canada:
- Ordering a payout in Canada automatically stops any further mortgage auto-draft payments.
- Completion of the deed is required prior to the employee’s leaving the country. This must be done at a local title office.
- A two-deed process is mandatory in Canada.
- Canadian residency requirements avoid the tax penalty. Goods or the family and/or employee still in Canada retains residency.
- Residency rules must be met when final equity is funded. A 25% clearance holdback is required if the employee leaves the country prior to acquiring the property. These funds have to be held by the closing attorney (in other words, a holdback cannot just be documented on the equity statement).
- Recognize the differences in the tax penalties between the regions (25% vs 37% in Quebec). Taxes are based on sales price and the time frame it can take Canada to clear their taxes to fund.
- Most Canadian loans have prepayment penalties. Also important to note: portable mortgages are the norm in Canada. The homeowner can transfer the interest rate as well as all the existing terms and conditions of the current mortgage to the new home purchase, avoiding pre-payment charges that are applied when breaking a closed mortgage early. Depending on how much time is left on the term, these savings can be significant. With this knowledge, a company may be interested in reimbursing the pre-payment penalties if the cost is less than porting the existing mortgage (or capping the cost accordingly).
- HST Tax is applied to the Real Estate Commission, which varies by province.
- An attorney needs to handle the payoff of any loans.
- Most Canadian lenders will not accept mortgage payments from third party vendors. This means the mortgage has to be paid off on properties that come into inventory.
Similar to U.S. home sale programs, implementation of a properly structured two-sale program for Canadian home sales avoids tax exposure to the employee by eliminating the corresponding taxation and gross-up paid by our client corporations. However, there are significant differences to the home sale process in Canada that can impact the relocation budget and the expectations with regard to the timing of the relocation.