The short answer
A Canadian investor buying in Florida or a US investor buying in Ontario is a non-resident borrower. Non-residents bring three lender-specific risks: harder underwriting, tax withholding on rents that reduces cash flow, and tax withholding on sale that can hold back the money needed to pay you out. Each is manageable if you plan for it at origination.
Underwriting a non-resident
Credit. Credit files do not cross the border. A Canadian with excellent Equifax Canada history may have no US score, and vice versa. Obtain the home-country credit report, bank references and asset statements directly.
Identity and tax numbers. US-property borrowers who are not US persons generally need an Individual Taxpayer Identification Number (ITIN) or, for entities, an Employer Identification Number (EIN) to file US returns. Canadian-property borrowers who are non-residents need a Canadian tax number to file returns. FINTRAC and AML identification rules apply (Article 7).
Income and currency. Verify foreign income with tax returns or notices of assessment, and stress-test debt service for currency movement where the borrower earns in one currency and pays in the other.
Eligibility to buy. Canada's prohibition on non-Canadians buying certain residential property runs to 1 January 2027 (Blog 13). Confirm a US purchaser falls within an exception, or that the property is outside the ban, before financing a Canadian purchase.
Rental income: withholding reduces cash flow
Canada. Rent paid to a non-resident is subject to 25% Part XIII withholding on the gross rent under paragraph 212(1)(d) of the Income Tax Act. A non-resident can elect under section 216 to be taxed on net rental income instead, and can file Form NR6 so the agent withholds on net rent. Without that planning, withholding on gross rent can sharply cut the cash available for debt service.
United States. Rent paid to a foreign person is subject to 30% withholding on the gross amount unless the owner elects to treat the income as effectively connected with a US trade or business (IRC §§ 871(d) and 882(d)), which allows tax on net income. The election is usually made with Form W-8ECI provided to the tenant or property manager.
For lenders, the point is cash flow. Ask for evidence that the election is in place and model debt coverage on after-withholding income.
Sale: withholding can block your payout
Canada: section 116. When a non-resident sells taxable Canadian property, including Canadian real estate, the purchaser can become liable for tax equal to 25% of the purchase price (higher for certain depreciable property) unless the vendor obtains a clearance certificate from the CRA under section 116 (s. 116(5)). Purchasers' lawyers therefore hold back a portion of the sale proceeds until the certificate arrives, which can take months.
United States: FIRPTA. When a foreign person sells US real property, the buyer must generally withhold 15% of the amount realized under IRC § 1445. The seller can apply for a withholding certificate on Form 8288-B to reduce withholding to the expected tax, but it takes time.
Why lenders care. On a refinance or sale, the lender expects to be paid in full on closing. A 15% or 25% holdback on the gross price can leave too little to discharge the mortgage. Solutions include:
- Reviewing withholding exposure at origination and sizing loan-to-value with it in mind
- Requiring the borrower to apply early for a section 116 certificate or a FIRPTA withholding certificate
- Agreeing with the purchaser's counsel on how the holdback and mortgage payout will be coordinated
- Including a covenant to cooperate with tax clearance processes
Estate and succession risk
Individual non-resident borrowers who die holding property in the other country create delays. Canadians holding US real estate directly can face US estate tax exposure, subject to treaty relief (Article XXIX-B of the Canada–US treaty). Probate or ancillary administration can stall payments. Lending to an entity, with guarantees, often reduces these risks.
Frequently asked questions
Back to the start of Volume 2: Construction and development lending (Article 11).
This content is general information and is not legal or tax advice. Legal counsel to the Cross-Border Private Lenders Association: Jasmine Daya & Co. Questions: info@cbpla.com · www.cbpla.com
Frequently asked questions
What is a section 116 certificate?
A CRA clearance certificate that a non-resident seller of Canadian real estate obtains so the purchaser need not withhold tax from the price.
How much is FIRPTA withholding?
Generally 15% of the amount realized when a foreign person sells US real property, reducible with an IRS withholding certificate.
Is rent paid to a non-resident taxed in Canada?
Yes. Part XIII imposes 25% withholding on gross rent unless the non-resident elects under section 216 and files an NR6 to withhold on net rent.
Can a US investor buy a home in a Canadian city?
Generally not before 1 January 2027 unless an exception applies under the Prohibition on the Purchase of Residential Property by Non-Canadians Act.
This content is general information for industry professionals and is not legal, tax or financial advice. Laws change and apply differently to each transaction; obtain advice from qualified counsel in each relevant jurisdiction. Legal counsel to the Cross-Border Private Lenders Association: Jasmine Daya & Co. Questions: info@cbpla.com