Section 116 Withholding Tax Calculator
A non-resident selling Canadian property has twenty-five percent of the gross price held back, not twenty-five percent of the gain. Work out the withholding, the tax actually owed, the refund and the ten-day filing deadline.
held back at closing
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Withholding Against Actual Tax
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The Gain and the Tax on It
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Deadlines, Penalty and What Comes Next
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Points That Decide This
What to Do Next
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Disclaimer: Section 116 of the Income Tax Act requires a non-resident disposing of taxable Canadian property to notify the CRA and obtain a clearance certificate. Where no certificate is issued by the time of the disposition, the purchaser is required to withhold and remit 25% of the gross purchase price, or 50% where the property is depreciable property, resource property, inventory or certain other property, and the purchaser is personally liable for that amount if it is not remitted. Notification on Form T2062, and Form T2062A where the property is depreciable, must be filed within 10 days of the disposition, with a penalty of $25 per day for late filing, minimum $100 and maximum $2,500. Where a certificate is obtained the withholding is generally reduced to 25% of the gain rather than of the gross price. Recapture of capital cost allowance is included in income in full rather than as a capital gain, and is the reason depreciable real property attracts the higher rate. Tax on the taxable half of the capital gain is estimated here at Ontario combined personal rates for an individual and at 26.5% for a corporation. A non-resident corporation’s actual rate depends on whether the income is earned in a province and whether Part XIV branch tax applies, and a non-resident individual may be affected by the principal residence rules and the deemed disposition on emigration. Shares of a Canadian corporation are taxable Canadian property principally where their value derives from Canadian real property, resource property or timber, and treaty relief may be available. A Canadian income tax return is required for the year of disposition to claim any refund. This page is general information, not tax advice.
Twenty-Five Percent of the Price, Not of the Profit
This is the part that shocks sellers at closing. The withholding is calculated on the gross sale price. A property bought for five hundred and twenty thousand and sold for nine hundred thousand has a gain of about three hundred and thirty-five thousand after costs, and a withholding of two hundred and twenty-five thousand.
The tax actually owed on that gain is far less. The difference comes back, eventually, by filing a Canadian return for the year of disposition. In the meantime the money sits with the CRA.
| On a $900,000 Sale | Amount |
|---|---|
| Withholding without a certificate, 25% of gross | $225,000 |
| Actual capital gain after costs | $335,000 |
| Tax on the taxable half | Substantially less |
| Refunded on filing | The difference |
The purchaser is personally liable if they do not withhold. That is why purchasers’ lawyers insist on the holdback and will not release it on a promise. It is not obstruction, it is the lawyer protecting a client who becomes liable for the seller’s tax if they get this wrong.
The Certificate Reduces the Hold to the Gain
Applying for a clearance certificate on Form T2062 changes the calculation. Instead of twenty-five percent of the gross price, the certificate is issued on payment of twenty-five percent of the estimated gain, which is a much smaller number.
The application can be made before closing on a proposed disposition or within ten days after. Filing before closing is far better, because the certificate can be in hand at closing and the holdback collapses to something manageable.
| Approach | Amount Held | When You See It Again |
|---|---|---|
| No certificate | 25% of the gross price | After filing the return for the year |
| Certificate applied for before closing | 25% of the gain | Little to recover, most released at closing |
| Certificate applied for after closing | Held by the lawyer meanwhile | On issue of the certificate |
Depreciable Property Carries Fifty Percent
Where the property is depreciable, the rate on the relevant portion is fifty percent rather than twenty-five, and Form T2062A is required alongside the T2062.
The reason is recapture. Capital cost allowance claimed against rental income in earlier years is brought back into income in full on the sale, not at the fifty percent inclusion rate that applies to a capital gain. A non-resident who claimed CCA for a decade has a large ordinary income item sitting inside what looks like a simple capital gain.
Claiming CCA on a Canadian rental property is often a poor decision for a non-resident. It defers a little tax each year and creates a full-rate income inclusion on sale, plus a higher withholding rate at closing. Many non-resident owners claimed it without being told what it does on exit.
Ten Days, and the Clock Starts at Closing
Notification must be filed within ten days of the disposition. The penalty is twenty-five dollars a day, minimum one hundred and maximum two thousand five hundred, so the cap is reached at one hundred days.
The penalty is not the real problem. The real problem is that until the certificate issues, the funds stay held, and the CRA is not quick. Processing takes months in normal conditions, and a file with missing documents takes longer.
- Purchase agreement and the statement of adjustments
- Proof of the original cost, which is the item most often missing
- Records of capital improvements claimed in the cost base
- CCA history where the property was rented
- A Canadian tax number for the seller, obtained in advance if there is none
- Proof of non-residency and the seller’s identification
Start this before the property is listed, not after the offer is accepted. Obtaining a tax number and locating proof of original cost from twenty years ago are the two things that delay these files, and both can be done while the property sits on the market.
What Counts as Taxable Canadian Property
- Real property situated in Canada, in every case
- Canadian resource property and timber resource property
- Shares of a corporation where more than half their value derives from Canadian real property, resource or timber property, tested over the previous sixty months
- Interests in partnerships and trusts holding such property
- Property used in a business carried on in Canada
Shares of an ordinary Canadian operating company are generally not taxable Canadian property, which surprises people in both directions. A non-resident selling shares in a Canadian software company usually has no section 116 obligation. A non-resident selling shares in a company whose main asset is a building does.
The Return Is Not Optional
The withholding is an instalment, not a final tax. Recovering the excess requires filing a Canadian income tax return for the year of the disposition, and that return is where the actual gain is computed and the refund claimed.
Sellers who receive the certificate and assume the matter is closed leave money with the CRA. The certificate settles the holdback; it does not settle the tax.
What This Calculator Does Not Cover
- Treaty relief on shares, which can eliminate the Canadian tax entirely in some cases
- The principal residence exemption, limited for years of non-residence
- Section 216 returns on the rental income during ownership
- GST/HST on the sale, where the property is not residential resale
- Provincial land transfer tax and non-resident speculation tax on the purchase side
- The seller’s home country tax and foreign tax credit position
The holdback is released by the certificate and the money is recovered by the return. Our non-resident property sale service covers the T2062, the certificate, the year-of-sale return and the refund.
Frequently Asked Questions
Common questions on selling Canadian property as a non-resident.
Related Calculators and Guides
More tools for non-resident property owners.
Start the Certificate Before the Property Is Listed
Send us the purchase history, the improvement records and the draft agreement. We will prepare the T2062, deal with the CRA, get the holdback reduced and file the return that recovers the rest.