Non-resident selling Canadian property — tax clearance certificate required
Disposition by non-resident person of taxable Canadian property
Section 116 requires non-residents who sell taxable Canadian property to obtain a clearance certificate from CRA before closing, or the buyer must withhold 25% of the purchase price and remit it to CRA.
Plain-language explanation
Section 116 ensures that non-residents who own Canadian real estate and certain other property pay Canadian tax when they sell it, even though CRA has no post-sale jurisdiction over them.
The withholding mechanism: When a non-resident disposes of "taxable Canadian property" (TCP) — which includes Canadian real estate, shares of private corporations with significant Canadian assets, and certain other property — the buyer must withhold 25% of the purchase price (or treaty rate) and remit it to CRA unless a clearance certificate (Form T2062) has been obtained.
What is taxable Canadian property? - Real property (land and buildings) situated in Canada - Property used in carrying on business in Canada - Shares of a corporation that derives more than 50% of its FMV from Canadian real property or timber property (within the preceding 60 months) - Certain other rights and interests
The clearance certificate process: The non-resident seller applies to CRA for a certificate (Form T2062 or T2062A) before closing. CRA reviews the estimated gain and may require a deposit or security. Once CRA issues the certificate, the buyer's withholding obligation is lifted.
Buyer's exposure: If a buyer fails to withhold where required, the buyer is personally liable to pay the withheld amount (25% of the purchase price) to CRA. This is a real risk in real estate transactions — buyers should always verify whether the seller is a non-resident.
Example
Julia (US resident) sells her Canadian condo for $600,000. The buyer must withhold $150,000 (25%) and remit to CRA unless Julia has obtained a Form T2062 clearance certificate. Julia applies before closing; CRA reviews the capital gain ($100,000) and may accept a deposit. Certificate issued; buyer pays full $600,000 to Julia.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Reporting requirements for non-residents selling Canadian property tightened. CRA extended the TCP definition in some contexts and increased audits of non-resident sellers who failed to obtain clearance certificates. Penalties were clarified for buyers who failed to withhold.
Before
Some uncertainty about which properties required the s.116 process
After
Clearer guidance; buyer liability confirmed; CRA processing times for T2062 published
Common questions
If I buy real estate from a non-resident, what do I need to do? +
Withhold 25% of the purchase price at closing and remit it to CRA within 30 days — unless the seller has obtained a Form T2062 clearance certificate from CRA before closing. Failure to withhold makes you personally liable for the unpaid amount.
What is a Form T2062? +
The "Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property." Filed by the non-resident seller before closing; CRA reviews the anticipated gain and issues a certificate once satisfied that the tax has been addressed.
Are public company shares taxable Canadian property? +
Generally no, as of 2010. Publicly listed shares were removed from the TCP definition for most purposes. But shares of private corporations whose value is primarily derived from Canadian real property remain TCP.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 116. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.