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What Happens During the Period of Ownership?
There are no annual income tax compliance or reporting issues related
to holding Canadian real estate for recreational or personal use only.
However, it is important to retain documentation to support the cost
of any capital improvements made to the property, as such amounts may
be added to the ACB of the property to reduce a future gain on sale.
If the property is leased to tenants and rent is collected, a withholding tax of 25% of the gross rents is required to be remitted to the Canadian tax department. If a tax return is filed within time limits, expenses such as interest, property taxes and depreciation may be claimed against the gross rents in arriving at net taxable income and tax is payable on the net taxable income and the withholding tax is creditable against the tax payable. Also, if an NR6 election is filed within time limits, the withholding tax may be based on the net available rents collected (gross rents less certain expenses, not including depreciation), instead of the gross rents.
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