A US Citizen Buying Canadian Property: The Foreign-Buyer Taxes, the Underused Housing Tax, the Rental Withholding, and the Sale

A US citizen buying Canadian real estate faces a set of taxes designed for non-resident buyers and a set of ongoing obligations that follow the property. Whether the buyer lives in Canada or in the US changes which apply: a US citizen who is a Canadian resident is treated like any Canadian buyer for most purposes; a US resident buying a Canadian vacation home or rental faces the foreign-buyer ban (until it expires), the provincial non-resident transfer taxes in Ontario and BC, the annual Underused Housing Tax, Part XIII withholding on rent, and Section 116 clearance on sale. On the US side, the property is a foreign asset with its own reporting and the gain is US-taxable with a credit.

Full guide: An American Buying Property in Canada: the Foreign Buyer Prohibition, the 25% Provincial Taxes, and the Purchases That Are Still Possible

Key takeaways

• The foreign-buyer ban: the Prohibition on the Purchase of Residential Property by Non-Canadians Act bars non-Canadians (non-citizens, non-permanent residents) from buying residential property in census metropolitan areas and agglomerations, extended to January 1, 2027, with exemptions for certain work-permit holders, students, refugees, and properties outside the covered areas. A US citizen who is a Canadian permanent resident is not a non-Canadian.
• Provincial transfer taxes: Ontario's Non-Resident Speculation Tax of 25% on residential purchases by foreign nationals anywhere in Ontario, with exemptions for permanent residents and certain work-permit holders and a rebate on obtaining permanent residence; BC's additional property transfer tax of 20% on residential purchases by foreign nationals in specified areas, with similar exemptions.
• Underused Housing Tax: an annual 1% federal tax on the value of residential property owned by non-resident, non-Canadian owners that is vacant or underused, with exemptions (including for a property used as a primary residence by the owner or family, or rented long-term) and an annual return requirement for affected owners.
• Rental income: 25% Part XIII withholding on gross rent for a non-resident owner, reducible to withholding on net rent with NR6 and a Section 216 return.
• Sale: Section 116 clearance (Form T2062, 25% of the gain remitted or security posted) before the buyer can pay without withholding 25% of the price; a Canadian return reporting the gain; the principal residence exemption unavailable for non-resident years.
• US side: the property is reported on Form 8938 only if held through an entity (direct real estate is not a specified foreign financial asset); rental income on Schedule E with the foreign tax credit; the gain on sale is US-taxable with a credit; a Canadian mortgage payoff can produce a section 988 gain.

The federal ban

The Act, in force since 2023 and extended to the end of 2026, prohibits non-Canadians from purchasing residential property (detached, semi-detached, townhouses, and condominium units of up to three dwelling units) in census metropolitan areas and census agglomerations. Non-Canadian means a person who is not a Canadian citizen or permanent resident (and corporations controlled by such persons). Exemptions: temporary residents who hold a work permit and meet work and tax-filing conditions, students meeting conditions, refugee claimants, and spouses of Canadians buying jointly; recreational property outside the covered areas is not affected. A US citizen resident in Canada on a work permit may qualify for the work-permit exemption; a US resident buying a Toronto condo does not, until the ban lapses.

The provincial taxes

Ontario NRST. 25% of the purchase price of residential property anywhere in Ontario acquired by a foreign national, foreign corporation, or taxable trustee. Exemptions: Ontario Immigrant Nominee Program nominees; protected persons; certain work-permit holders who occupy the property; and spouses of exempt persons buying jointly. Rebates: a foreign national who becomes a permanent resident within four years of purchase can apply for a full rebate. A US citizen who is already a permanent resident pays no NRST.

BC additional PTT. 20% of the fair market value of residential property in Metro Vancouver, the Capital Regional District, the Fraser Valley, Central Okanagan, and Nanaimo acquired by a foreign national or foreign corporation, on top of the regular property transfer tax. Exemptions for BC Provincial Nominees and refunds for foreign nationals who become permanent residents within a year.

The Underused Housing Tax

The UHT is an annual 1% tax on the taxable value (the greater of assessed value and most recent sale price, or fair market value by election) of residential property owned on December 31 by an affected owner: a non-resident, non-citizen individual, or a corporation or trust that is not an excluded owner. Exemptions include property that is the primary place of residence of the owner or the owner's spouse or child, property rented for at least 180 days in the year in periods of at least a month to arm's-length tenants, property uninhabitable or under renovation, vacation property in certain non-urban areas used at least 28 days a year, and property acquired in the year. Affected owners must file a UHT return by April 30 each year even if exempt; the penalty for not filing is at least $1,000 (individuals). A US citizen who is a Canadian permanent resident is not an affected owner; a US resident who owns a Canadian property is.

Rental income

A non-resident owner's Canadian rental income is subject to 25% Part XIII withholding on gross rent, remitted by the tenant or a Canadian agent. Filing NR6 before the first rent payment of the year, with an agent, allows withholding on net rent; the Section 216 return by June 30 reports the net income at graduated rates (with the non-resident surtax in place of provincial tax). Expenses, including mortgage interest and capital cost allowance, are deductible.

Sale

A non-resident seller must notify the CRA within 10 days of the sale on Form T2062 and remit 25% of the gain (or post security) to obtain a clearance certificate; without it, the buyer withholds 25% of the gross price. A Canadian return for the year of sale reports the gain at half inclusion; the principal residence exemption can be claimed only for years the seller was a Canadian resident (plus one). Recaptured capital cost allowance is fully taxable.

The US side

Reporting. Directly held real estate is not a specified foreign financial asset for Form 8938; a Canadian bank account used for the property is on the FBAR. Property held through a Canadian corporation or trust is reported through that entity's forms.

Rental income. Schedule E in US dollars with mandatory depreciation (40 years for foreign residential property under ADS); the Canadian tax (Section 216) is a foreign tax credit in the passive basket.

Gain on sale. Taxable in the US as a capital gain on the US-dollar basis and proceeds; the Canadian tax is a credit. Section 121 can apply if the property was the seller's principal residence for two of the last five years.

Currency. A Canadian-dollar mortgage repaid after the Canadian dollar has weakened produces a section 988 gain for a US person.

Worked example

A Miami resident (US citizen, not a Canadian permanent resident) wants to buy a $1.2 million Toronto condo in 2026 to rent for a few years and use in retirement.

• Ban. Toronto is a census metropolitan area; she is a non-Canadian; the purchase is prohibited until the ban lapses (currently January 1, 2027) unless an exemption applies. She waits, or buys outside a covered area.
• NRST (from 2027). 25% of $1.2 million: $300,000, on top of Ontario and Toronto land transfer taxes (about $45,000). No rebate unless she becomes a permanent resident within four years.
• UHT. Rented long-term to arm's-length tenants: exempt, but a UHT return is required each April 30.
• Rent. NR6 and Section 216; agent appointed; net-basis withholding.
• US. Schedule E with 40-year depreciation; foreign tax credit for the Section 216 tax.
• Sale in 2035. Section 116 clearance; Canadian tax on the gain (no principal residence exemption for non-resident years); US capital gain with a credit; section 988 on the mortgage payoff.
• Alternative. Buying after obtaining Canadian permanent residence (if she moves) avoids the ban, the NRST, and the UHT, and the property becomes eligible for the principal residence exemption once she lives in it.

Official sources

"The usual Part XIII tax rate is 25% unless a tax treaty between Canada and your home country reduces the rate." — Canada Revenue Agency, Non-residents of Canada, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/non-residents-canada.html

"The Underused Housing Tax (UHT) is an annual federal 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022." — Canada Revenue Agency, Underused Housing Tax, https://www.canada.ca/en/services/taxes/excise-taxes-duties-and-levies/underused-housing-tax.html

"Effective October 25, 2022, the NRST rate is 25%." It applies "on the purchase or acquisition of an interest in residential property located anywhere in Ontario by individuals who are foreign nationals ... or by foreign corporations or taxable trustees." — Government of Ontario, Non-Resident Speculation Tax, https://www.ontario.ca/document/land-transfer-tax/non-resident-speculation-tax

Practitioner note

The foreign-buyer layers stack: the ban, then the 25% NRST, then the annual UHT return, then the rental withholding, then Section 116 on the way out. A US resident buying in Toronto or Vancouver pays a premium of a quarter of the price at the door and files a Canadian return every year they own it. We walk clients through the whole sequence before the offer, and for those who plan to move, we look at whether permanent residence should come first.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the foreign-buyer tax analysis before purchase, the annual UHT and rental filings, and the Section 116 clearance and returns on sale. See cross-border pricing or book a call.