What Non-Residents Need to Know Before Selling Canadian Real Estate

What are the Canadian income tax implications when a non-resident individual sells a real property in Canada? 

Whether the property is a rental property, a vacation home, or an investment asset, non-residents are subject to specific obligations under the Canadian income tax law when they dispose of real property situated in Canada.  

The following are the key points to keep in mind: 

1. Withholding tax requirements  

When a non-resident sells real property in Canada, the buyer is generally required to withhold 25% (or 50% if depreciable property) of the gross sale price) and remit them to the Canada Revenue Agency (CRA) within 30 days from the end of the month when the sale occurred. 

If the real property is situated in the province of Québec, an additional withholding tax 12.875% (or 30% if depreciable property) on the gross sale price also applies.  

To avoid excessive withholding, the seller can request a certificate of compliance from the CRA, which allows the withholding to be based on the estimated gain rather than the total sale price. An additional form is required for real property in Quebec. 

2. Who is responsible for withholding tax? 

The buyer, not the seller, is legally responsible for withholding and remitting the required tax to the CRA when purchasing real estate from a non-resident. If the buyer fails to withhold the tax, he will be held personally liable for paying the tax. 

Because of this risk, the buyer’s lawyer (or notary in Quebec) usually insists on holding the funds until the seller receives a certificate of compliance.  

3. When to file the certificate of compliance application 

The application for a certificate of compliance (Federal form T2062/T2062A and Quebec form TP-1097/TP-1102.1 where applicable) must be filed no later than 10 days after the disposition date, which is usually the closing date. 

If the application is not filed or is filed late, the CRA may impose penalties of up to $2,500, with similar penalties applicable in Quebec.  

4. Processing delays: why it is essential to file your application early 

In recent years, the CRA has experienced significant delays in processing applications for certificates of compliance, which have often taken several months to be issued. These delays can disrupt closings, prolong holdbacks, and create cash flow problems for sellers. 

Therefore, we recommend filing the application as soon as an offer to purchase is accepted, rather than waiting until closing.  

5. Canadian Income Tax Return 

Non-resident seller is required to file a Canadian personal income tax return (and a Quebec return if applicable) for the year of the sale to report the actual capital gain. 

Non-resident owners need to plan before putting their property up for sale, as any delay in obtaining a certificate of compliance can delay the completion of the sale or have unforeseen cash flow implications. 

For help navigating the non-resident compliance process or if you have questions, don’t hesitate to contact Arda Minassian or Valerie Seng from the Global Mobility Services tax team at Forvis Mazars Canada.