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Non-Resident Tax Guide · Canada · Licensed CPA

Selling Canadian Property as a Non-Resident: Section 116, Withholding and Clearance Certificates

How a non-resident is taxed on the sale of Canadian real estate, how the Section 116 withholding works, how a clearance certificate reduces the amount held back, the ten-day deadline, purchaser liability, and how to recover excess withholding. Written by a licensed Canadian CPA who works with non-resident sellers.

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When a non-resident sells Canadian real estate, Section 116 of the Income Tax Act requires the purchaser to withhold and remit a portion of the sale price to the CRA unless the seller obtains a clearance certificate. Without a certificate the withholding is a percentage of the gross price; with one it is based on the estimated gain instead, which usually releases far more of the proceeds at closing. The seller then files a Canadian return for the year of the sale to reconcile the actual tax and recover any excess withheld. The process is deadline-driven, so planning ahead is essential.

Why Selling as a Non-Resident Is Different

When a Canadian resident sells property, the tax is settled through their return. For a non-resident, Canada cannot rely on a later filing to collect, so it collects up front. Section 116 puts the obligation on the purchaser to withhold tax from the proceeds and remit it to the CRA, with the seller able to reduce that withholding by obtaining a clearance certificate. This is one of the most consequential and most misunderstood areas of Canadian real estate tax, and getting it wrong is expensive for both sides. It sits at the centre of our non-resident tax return work.

The Withholding: What Gets Held Back

If no clearance certificate is in hand at closing, the purchaser is required to withhold on the gross sale price, not on your profit. The long-standing rates are as follows, though a proposed increase has been under discussion, so the rate in effect must be confirmed at the time of your sale.

Property TypeDefault Withholding (of Gross Price)
Most property (e.g. non-rental home)Historically 25%
Depreciable / rental propertyHistorically 50%
With a clearance certificateBased on the estimated gain, not the price

The withholding is a prepayment, not the final tax. It is security for the tax that may be owing. The actual tax is settled when you file a Canadian return reporting the sale, and any amount withheld beyond the real tax on your gain is refunded to you. Many non-resident sellers end up owed a refund.

The Clearance Certificate: The Heart of Section 116

The clearance certificate, or certificate of compliance, is how you avoid having a large slice of the gross price locked up. When you apply, you declare the sale price, your original cost, improvements and selling costs, and pay or secure the estimated tax on the gain. The CRA then issues the certificate, and the withholding is calculated on that gain rather than the whole price. On a property with a high price but a modest gain, the difference in cash released at closing is dramatic.

FormUsed For
T2062Disposition of real property
T2062ADepreciable property (e.g. rental building)
T2062BCertain partnership interests

A Worked Example

Suppose you are a non-resident selling a Canadian condo, never rented, for one million dollars, which you originally bought for eight hundred thousand.

  1. Without a certificate: the purchaser withholds on the gross price. At the historical 25%, that is $250,000 held back, regardless of your actual gain.
  2. Your actual gain: proceeds of $1,000,000 less an adjusted cost base of $800,000 and selling costs is roughly a $200,000 gain, on which the real tax is a fraction of the $250,000 withheld.
  3. With a certificate: the withholding is based on that estimated gain instead of the price, so far less is held back and far more of your proceeds are released at closing.

The gap between $250,000 held on the price and the much smaller amount based on the gain is exactly why the certificate matters. Rates are illustrative and must be confirmed for your sale.

The Deadlines That Drive Everything

Two timing rules dominate this process. First, a non-resident who disposes of taxable Canadian property generally must notify the CRA within ten days of the disposition, and missing that window triggers a late-filing penalty. Second, the certificate itself is rarely issued before closing and can take several weeks to process, so the application should be filed well ahead of the closing date, ideally at least thirty to forty-five days in advance. Because the application can usually begin once the sale agreement is firm, the right move is to start early rather than wait for closing.

Purchaser liability is real and has no time limit. If no certificate is obtained and the purchaser fails to withhold, the CRA can assess the purchaser for the tax on the seller's behalf, generally with no limitation period, unless the purchaser made reasonable inquiry and believed the seller was a resident or the property was treaty-exempt. This is why buyers and their lawyers insist on a certificate or a holdback.

Holdbacks and Comfort Letters

Because the certificate usually is not ready at closing, the seller's and buyer's lawyers arrange an undertaking to hold back the required percentage of the proceeds in trust until it arrives. Once the certificate is issued, the correct tax is remitted and the balance of the holdback is released to the seller. If processing runs past the point where the purchaser would otherwise have to remit, the CRA can issue a comfort letter, allowing the withheld funds to be held without interest or penalty until the certificate is issued. We request a comfort letter whenever CRA delays would otherwise create a problem.

Rentals, Recapture and the Full History

A property that was rented brings the higher default withholding and additional issues. If you claimed capital cost allowance against the rental income, selling can trigger recapture, bringing some of that previously deducted depreciation back into income and affecting both your tax and the withholding calculation. The rental should also have been reported under the non-resident rental rules while it was earning income. We line up the sale with your Section 216 rental filings and your NR4 and withholding compliance so the whole ownership history is consistent.

Where non-resident sellers get caught: missing the ten-day notification, applying for the certificate too late, failing to reconstruct the cost base and improvements, overlooking capital cost allowance recapture on a former rental, ignoring an Underused Housing Tax filing that can block the certificate, and forgetting the separate Quebec process on Quebec property.

Filing the Return and Getting Your Refund

Even after the certificate process, a non-resident generally files a Canadian return for the year of the disposition to report the sale and reconcile the actual tax against what was withheld or paid. Because the withholding is so often more than the real tax on the gain, this return is how the excess comes back to you. This is also where a properly documented cost base, including years of improvements, pays off. Filing it correctly is part of full non-resident and cross-border tax planning, not an afterthought.

Case Study: Non-Resident Seller, Ontario

A non-resident who had emigrated years earlier was selling a Toronto property that had been rented for part of the ownership period. Left alone, the purchaser would have held back the higher rate on the gross price, tying up a large sum. We confirmed residency and that the asset was taxable Canadian property, obtained an individual tax number, reconstructed the cost base including improvements, calculated the capital cost allowance recapture from the rental years, and filed the T2062A package early. We coordinated the holdback with the lawyers, obtained a comfort letter when processing ran long, and then filed the non-resident return that recovered the excess withholding. The figures here are illustrative of the work we do, not a specific client file.

Certificate obtained. Holdback minimised. Excess withholding refunded.

Selling Canadian Property as a Non-Resident?

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Frequently Asked Questions: Selling Canadian Property as a Non-Resident

What happens when a non-resident sells Canadian property?
When a non-resident disposes of taxable Canadian property, Section 116 of the Income Tax Act applies. The purchaser is generally required to withhold and remit a portion of the price to the CRA unless the seller obtains a clearance certificate, and the seller normally files a Canadian return for the year of the sale to reconcile the actual tax. It is a compliance-heavy process that rewards planning ahead.
What is a Section 116 clearance certificate?
A Section 116 clearance certificate, also called a certificate of compliance, is the CRA's confirmation that a non-resident seller has paid or secured the Canadian tax on a disposition of taxable Canadian property. With it, the purchaser can withhold based on the estimated gain rather than the gross price, which usually releases far more of the proceeds to the seller at closing.
What is taxable Canadian property?
Taxable Canadian property includes Canadian real estate, shares of certain private corporations whose value comes mainly from Canadian real property, Canadian resource and timber properties, and some other interests. Canadian real estate owned by a non-resident is the most common example. Whether a specific asset is taxable Canadian property is a determination we confirm for your situation before anything else.
How much tax is withheld when a non-resident sells?
The long-standing default is that the purchaser withholds a percentage of the gross sale price, historically twenty-five percent for most property and fifty percent for depreciable or rental property, unless a clearance certificate reduces it. A proposed increase to the withholding rate has been under discussion, with the effective date subject to change, so the current rate must be confirmed at the time of your sale. We check the applicable rate before you close.
Is the withholding the final tax I owe?
No. The withholding is a prepayment, not the final tax. It is security for the tax that may be owing, and the actual tax is determined when you file a Canadian return reporting the sale. If the amount withheld exceeds the tax on your gain, you claim the excess back as a refund through that return. Many non-resident sellers are owed a refund.
Why is the withholding based on the sale price and not the profit?
Without a clearance certificate, the purchaser must withhold on the gross price because they have no way to verify your gain or your cost base. The certificate is what lets the CRA confirm the numbers, so the withholding can be based on the estimated gain instead. That is precisely why obtaining the certificate matters so much to your cash at closing.
How does a clearance certificate reduce the withholding?
When you apply, you declare the sale price, your original cost, improvements and other adjustments, and pay or secure the estimated tax on the gain. The CRA then issues the certificate authorising withholding based on that gain rather than the whole price. On a property with a large price but a modest gain, this can free up a substantial part of the proceeds.
What forms are used to apply for the certificate?
The main form is T2062 for real property, with T2062A for depreciable property such as a rental building and T2062B for certain partnership interests. The application is supported by the purchase and sale agreements, proof of cost base, records of improvements, legal fees and, where relevant, capital cost allowance calculations. We prepare the complete package.
What is the ten-day notification deadline?
A non-resident who disposes of taxable Canadian property generally must notify the CRA within ten days of the disposition. Missing this deadline exposes you to a late-filing penalty. Because the application can usually be started once the sale agreement is firm, we begin the process early rather than waiting for closing, which protects both the deadline and your cash.
What is the penalty for filing late?
Late notification carries a per-day penalty with a minimum and a maximum set by the Act. It is a needless cost that comes purely from missing the ten-day window. The figures are set by the CRA and can be indexed, so we confirm the current amounts, but the practical answer is simple: file on time and the penalty never arises. We manage the timing for you.
Can the purchaser be held liable for my taxes?
Yes, and this is what makes Section 116 so serious. If no certificate is obtained and the purchaser does not withhold, the purchaser can be assessed for the tax on your behalf, generally with no limitation period, unless they made reasonable inquiry and believed you were a resident or the property was treaty-exempt. This is why buyers and their lawyers insist on the certificate or a holdback.
What is a holdback and how does it work?
Because the certificate is rarely issued before closing, the seller's lawyer and the buyer's lawyer usually arrange an undertaking to hold back the required percentage of the proceeds in trust until the certificate arrives. Once it is issued, the correct tax is remitted to the CRA and the balance of the holdback is released to you. The holdback protects the buyer while your certificate is processed.
How long does it take to get a clearance certificate?
Processing typically takes several weeks from a complete application, often in the range of six to eight weeks, though it varies with CRA volumes. Because of this, the application should be filed well before closing, ideally at least thirty to forty-five days ahead. Delays are common, so starting early is the single most important thing you can do.
What is a comfort letter?
If the certificate has not been issued by the time remittance would otherwise be due, the CRA can provide a comfort letter confirming your filing and payment are in order. This lets the purchaser's lawyer hold the withheld funds without interest or penalty until the certificate is issued. We request a comfort letter where processing runs past the deadline so nobody is penalised for CRA delays.
Do I need a Canadian tax number to apply?
Yes. A non-resident generally needs a Canadian tax identification number, such as an individual tax number, before submitting a clearance certificate request, and the number application should be made separately to avoid delaying the disposition request. We arrange the tax number as an early step so it does not hold up the certificate.
Do I still have to file a Canadian tax return after selling?
Usually yes. Even after the certificate process, a non-resident generally files a Canadian return for the year of the disposition to report the sale and reconcile the actual tax against what was withheld or paid. This is how any excess withholding is refunded to you. Our non-resident tax return service handles this filing.
How is my capital gain calculated on the sale?
Your gain is the proceeds of disposition less your adjusted cost base and the costs of selling, such as legal fees and commissions. The adjusted cost base is your original purchase price plus eligible costs and capital improvements. Reconstructing a complete cost base, including improvements over years of ownership, is often where the real tax saving is, and it must be documented.
What if the property was a rental?
A rental or depreciable property faces the higher default withholding, historically fifty percent of the price, and brings extra issues such as recapture of capital cost allowance previously claimed. It should also have been reported under the non-resident rental rules while it was rented. We coordinate the sale with your Section 216 rental filings so the whole history is consistent.
What is recapture of capital cost allowance?
If you claimed capital cost allowance, a form of depreciation, against the property's rental income, selling it can trigger recapture, which brings some of that previously deducted amount back into income. This affects both the tax on the sale and the withholding calculation on a depreciable property. We calculate any recapture as part of the disposition so there are no surprises.
Does the withholding apply if I sell at a loss?
The purchaser's withholding obligation is based on the price, not on whether you made a profit, so it can apply even on a loss. That is another reason to apply for the certificate even when you expect no gain, because it prevents an unnecessary holdback of a large sum you would otherwise have to reclaim by filing a return. We apply regardless of expected outcome.
What are the GST/HST implications of selling?
Most sales of used residential housing are exempt from GST/HST, but commercial property, certain new or substantially renovated housing, and some other cases are taxable, and non-resident status adds further considerations. Whether tax applies depends on the property and the facts. We assess the GST/HST position alongside the Section 116 process rather than treating them separately.
Does Quebec have its own rules?
Yes. Quebec runs a parallel process to the federal one, with its own notification form and an additional Quebec withholding on the gain, on top of the federal withholding, for property located in Quebec. The federal certificate does not cover Quebec. Where a Quebec property is involved, we coordinate both the federal and Revenu Quebec filings.
Can the Underused Housing Tax affect my sale?
It can. The CRA may refuse to issue a clearance certificate if a non-resident owner has not met their filing and payment obligations under the Underused Housing Tax rules for the residential property. Even an exempt owner generally still has to file the annual return. We check your Underused Housing Tax position early so it does not block the certificate.
What if I co-own the property with someone?
Each non-resident co-owner is generally treated separately, reports their own share of the disposition, and needs their own certificate and, where required, their own return, and penalties apply to each. A Canadian-resident co-owner is not subject to the same withholding on their share. We handle each owner's filing so the whole transaction is compliant.
Am I affected if I am an emigrated Canadian?
Possibly. A former Canadian resident who has become a non-resident and still owns Canadian real estate is subject to the same Section 116 rules on a later sale, and there may also be departure-tax history to consider. Residency status drives everything, so we confirm it first. Cross-border situations like this sit within our cross-border tax planning work.
Why is non-resident property sale a CRA audit focus?
Because the amounts are large, the compliance is often missed, and the collection risk is high, dispositions by non-residents are among the CRA's higher audit priorities, particularly where CCA was claimed, residency is unclear, or a corporation or trust is involved. Doing the Section 116 process correctly and filing the return is the best protection against a later reassessment.
How do you help a non-resident sell Canadian property?
We confirm residency and whether the asset is taxable Canadian property, obtain the tax number, prepare and file the T2062 package, calculate the gain and any recapture, request a comfort letter if needed, coordinate with the lawyers on the holdback, and file the non-resident return to recover any excess withholding. We handle the withholding and compliance end to end.
How much does it cost to handle a non-resident sale?
We quote a flat fee based on the property, whether it was a rental, whether Quebec or multiple owners are involved, and the state of your records, so you know the cost upfront with no hourly billing. All fees include HST. We give you a clear, fixed quote after understanding your sale and your history.
How do I pay your fees?
Payment is by Interac e-Transfer to info@gondaliyacpa.ca. Auto-deposit is enabled, so no security question is needed. We confirm the flat fee, including HST, before any work begins.
How do I get started before I sell?
Please book a free consultation as early as possible, ideally once your sale is firm or even while you are planning it, and tell us about the property, how long you have owned it, whether it was ever rented, and your residency. We map out the Section 116 steps, quote a flat fee, and start the process. Book Free Consultation →

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