You are considered a first-time home buyer if neither you nor your spouse or common-law partner own a home that you have occupied in the current year or the last four years. However, for a property to be considered a qualifying home, it must be located in Canada. So, your Portuguese holiday property will not qualify for the HBP.
If you were to take a withdrawal from your RRSP to buy this property, Andy, the withdrawal would be added to your other income for the year and would be fully taxable. This probably makes it a bad option to use to buy property.
In my opinion, if you’re not going to use a property for a good part of the year, or you’re not prepared to rent it out when you’re not using it, the math is usually for something rather than ownership. Supports rental.
Tax on rental income from a foreign property
If you own rental property in a foreign country, the rental income is often subject to tax in that foreign country. Non-residents of Portugal, for example, are subject to tax on income from Portuguese sources. You must also report foreign rental income on your Canadian tax return, as Canada taxes worldwide income. In Canada, foreign tax generally qualifies for the foreign tax credit to avoid double taxation on the same income. Interest on money borrowed to acquire the property, whether in Canada or abroad, is tax deductible.
When you own foreign property such as rental property, use Form T1135 – Foreign Income Verification Statement to disclose your ownership as part of your annual tax filing. This form is required if you have certain foreign investments such as rental property with a cost of more than CAD $100,000.
tax on the sale of a foreign asset
A foreign property may qualify for the principal residence exemption, meaning that its sale will not be subject to capital gains tax in Canada. However, most people’s foreign real estate is less valuable than their Canadian real estate, so claiming the principal residence exemption on foreign property is not common.
If your primary residence is in Canada and you sell a foreign asset, including one in Portugal, it will usually be subject to foreign capital gains tax in the local currency. Canada will also tax capital gains based on the purchase and sale prices in Canadian dollars.
Therefore, to decide on the right course of action, you need to calculate the Canadian-dollar value of the asset as of the original purchase date and sale date. Currency exchange can make your Canadian capital gains larger or smaller than foreign capital gains denominated in the local currency.