Non-Resident Selling Property in Canada: Section 116, the 25% Withholding and Your Clearance Certificate

If you’re a non-resident selling property in Canada, the buyer is required to hold back 25% of the sale price — not 25% of your profit — and send it to the CRA unless you produce a certificate of compliance under section 116. That holdback is a deposit, not your final tax bill. You have 10 days after closing to notify the CRA, and you’ll usually get most of the money back once your return is filed. Here’s how the process actually works, and what it costs to get it wrong.

Why is the buyer holding back 25% of my sale price?

If you’re reading this, it’s likely already happening: your lawyer has told you that a large chunk of your sale proceeds isn’t coming to you at closing. It isn’t a mistake — it’s the law.

What section 116 actually requires

Section 116 of the Income Tax Act deals with the sale of taxable Canadian property (TCP) — real estate, most Canadian shares, and certain other property — by a non-resident. The rule is built around the buyer: unless you give the purchaser a certificate of compliance from the CRA at or before closing, they must withhold a portion of what they pay you and remit it to the CRA directly. That’s why your lawyer won’t hand over the full sale price — doing so would expose the buyer to a tax bill that isn’t theirs. Real estate is also a sector the CRA names directly in its own compliance reporting — a plain fact worth knowing, not a reason to worry if you’re doing this properly.

It’s 25% of the price, not 25% of the profit

Here’s the number that catches almost everyone off guard: without a certificate, the purchaser must withhold 25% of the gross sale price — the full amount you sold for, not the gain you made on it. Per the CRA’s guidance on disposing of or acquiring certain Canadian property, this is based on the cost of the property to the purchaser — in practice, the price they paid.

Say you sell a Toronto condo for $1.2 million. Without a certificate, the withholding is $300,000 — a quarter of the sale price — regardless of what you paid for it originally. That’s the figure that makes sellers panic, and it’s usually not what you actually owe. More on that shortly.

When a non-resident sells Canadian property without a certificate of compliance, the purchaser must withhold 25% of the gross purchase price — not 25% of the gain — and remit it to the Canada Revenue Agency.

Why your lawyer insists

The withholding rule exists to protect the purchaser, not you. If the buyer fails to withhold and remit when they should have, they can be held personally liable to the CRA for that amount — on top of what they already paid you. No real estate lawyer lets a client take on that exposure knowingly, which is why the funds sit in trust until the certificate issues — not because anyone doubts you.

Are you actually a non-resident?

Residency for Canadian tax purposes turns on your ties to Canada — home, spouse, daily life — not citizenship or which passport you carry. It’s a facts-and-circumstances call, and it’s genuinely possible to be unsure, especially if you left Canada partway through the year. We won’t walk through a residency test here — that’s a separate conversation. If there’s any doubt, confirm your status before relying on anything in this article.

The two different 25% calculations — and why people get this wrong

This is the part almost no one explains correctly, including a lot of otherwise-good websites: there are two separate 25% calculations in this process, on two different amounts, for two different purposes. Treating them as one number is where most of the fear — and most of the bad information — comes from.

The purchaser’s 25%: on the gross purchase price

If closing happens with no certificate in hand, the buyer withholds 25% of the full price and remits it. This is a liability rule for the purchaser — it doesn’t ask what your gain was, because at that point nobody’s calculated it.

The vendor’s 25%: on the gain, not the price

To get the certificate — and release the buyer from that withholding obligation — you pay (or post acceptable security for) 25% of your gain: proceeds of disposition minus adjusted cost base (ACB), the amount you paid for the property plus certain capital costs. This is the flat-rate calculation set out in the CRA’s procedures for dispositions of taxable Canadian property by non-residents (IC72-17R6).

Your selling costs don’t reduce it

Here’s the detail that catches even sophisticated sellers: your real estate commission and legal fees do not reduce this 25%-of-gain calculation. IC72-17R6 is explicit that outlays and expenses to make the disposition aren’t taken into account when working out the certificate payment. Those costs still matter — they reduce your actual gain later, on your tax return — but not the amount you pay to get the certificate issued.

When the rate is 50% instead

For most residential real estate, the rate above is what applies. But the CRA’s own guidance notes that the purchaser is entitled to withhold “25% (50% on certain types of property)” of the relevant amount. In practice, the higher rate attaches to depreciable taxable Canadian property — most commonly a rental property where capital cost allowance (CCA) was claimed, because part of what’s being withheld against is potential recapture on top of the capital gain. If you rented the property out at any point and claimed CCA, flag that early — it changes which form you file and how the withholding is calculated.

If you’d rather talk through your own numbers than guess from a table, book a free 30-minute call — it’s a quick way to find out which of these two 25%s actually applies to your situation, and roughly what it means in dollars.

What is a certificate of compliance, and how do you get one?

A certificate of compliance — also called a clearance certificate, the same document under two names — is what tells your buyer’s lawyer how much can safely be released to you. Here’s the process, start to finish.

Step 1: Work out whether you’re filing before or after closing

If you know the sale is happening, the better route is to file a notice of proposed disposition before closing. That gets the CRA working on your certificate ahead of time, instead of after the fact. If that window has already passed, the 10-day notification clock starts running from the date of closing instead — more on that deadline below.

Step 2: Pick the right form — T2062, T2062A, or both

Form T2062 is the request itself; if your situation touches depreciable property, check the CRA’s non-resident forms and publications list for T2062A. A rental property commonly needs both forms, not one — this is exactly the kind of scoping our non-resident tax services handle before anything is submitted.

Step 3: Assemble the support

The CRA wants the purchase and sale agreements, proof of your adjusted cost base, the closing statement, and — if the property was ever rented — your CCA history. Gathering this from another country after the fact is the biggest source of delay we see, and it’s also where the CRA most often comes back with follow-up questions on your ACB support; our CRA representation service handles that correspondence directly.

Step 4: Remit the 25% of the gain, or post acceptable security

This is the payment described above — 25% of proceeds minus ACB, with selling costs left out of the calculation. Some sellers post acceptable security instead of remitting cash outright; which route makes sense depends on your circumstances.

Step 5: Wait for the CRA to issue the certificate

Be honest with yourself here: it takes time, and there’s no published service-standard turnaround we can point you to. “Start early” is the real advice, not a number of weeks. Your funds stay in a lawyer’s trust account until the certificate issues — frustrating, but routine, and it resolves.

Step 6: File the Canadian return for the year of sale

A surprising number of sellers don’t realize this step exists: the withholding and certificate process is not a substitute for filing. You still generally file your Canadian return for the year of the sale, where the actual gain is calculated properly — and where the gap between what was withheld and what you owe comes back to you.

What happens if you miss the 10-day deadline?

If you didn’t file a notice of proposed disposition ahead of closing, the clock starts the day the property changes hands. You have 10 days to notify the CRA of the disposition. Miss it, and there’s a real, avoidable cost.

The failure-to-comply penalty

The CRA’s failure-to-comply penalty for late notification is $25 for each day the notification is late, with a minimum of $100 and a maximum of $2,500 — per certificate required. If your sale needs both T2062 and T2062A, a late filing can attract the penalty on each one separately.

It’s a filing penalty, not a tax penalty

This penalty applies for not notifying on time, whether or not you owe tax at all. A seller who ends up with little or no real tax liability can still owe it for a late notification — worth doing on time even when you’re confident the numbers are in your favour.

What to do if you’re already late

File the notification and certificate request now — don’t wait, since the daily penalty runs while you do. If there’s a separate issue behind it — say, rental income never reported in earlier years — that’s a different fix: the Voluntary Disclosures Program exists for unreported prior-year income, worth raising before the CRA raises it with you.

Is 25% actually what you owe? (Usually not.)

Take a breath here, because this is the section that matters most.

The withholding is a deposit against the tax, not the tax

Everything held back or remitted through this process is a deposit against your actual tax liability — not a final bill. Once your return for the year of sale is filed and your real gain is calculated, most sellers get a substantial refund of the difference.

The section 116 withholding is a deposit against tax, not the final tax. The non-resident still files a Canadian return for the year of sale to compute the actual gain and recover the excess.

How the real tax is worked out

Your actual gain is proceeds minus adjusted cost base minus selling costs — the same commission and legal fees ignored for the certificate calculation count here. Only 50% of that gain is included in taxable income under Canada’s inclusion rate (see our guide to how capital gains are taxed in Canada), taxed at graduated rates on your Canadian return.

Worked example

This example is illustrative — round numbers, to show the shape of it. Get your own figures run properly before you rely on any of this.

That last line — the taxable capital gain — is where this illustration stops. Actual tax owing depends on graduated rates on your return, not modelled here; the point is simply to show how far the number moves from the $300,000 that started the panic.

When you might owe more than expected

One scenario runs the other way: if you rented the property and claimed CCA, some of that may be recaptured and taxed as income on the sale, on top of your capital gain — the most common reason a seller owes more than the “gain × 50%” math suggests, and why Step 2 asks whether you need T2062A alongside T2062.

Buying from a non-resident? What the purchaser needs to know

This process affects two parties, and buyers deserve a straight answer too.

The buyer’s exposure

If you buy from someone who turns out to be a non-resident, and you don’t withhold when a certificate isn’t in hand, you — the purchaser — can be held personally liable to the CRA for that amount. The rule makes sure someone stays accountable for it, and that someone is whoever holds the funds at closing.

Why “I didn’t know they were a non-resident” is not a defence

Confirm the seller’s residency status in writing, as part of the agreement, before closing. Your real estate lawyer can build this into the transaction. Raise any doubt about a seller’s residency then — not after funds have changed hands.

Selling Canadian property from abroad: what we handle for you

Most of the holdback comes back. The process is routine when started early, and genuinely unpleasant when started late — those are really the only two ways this goes. We file the T2062 (and T2062A, where it applies), correspond with the CRA’s non-resident unit, and stay on it until the certificate issues and your funds release. We also file the Canadian return for the year of sale — where the over-withheld amount actually comes back.

We act for non-resident sellers across Toronto, Markham, and Richmond Hill, and — since this reader is so often overseas — we routinely work across time zones and coordinate directly with your Ontario real estate lawyer, so you’re not relaying paperwork between two professionals yourself. Selling from Québec? The province runs its own parallel clearance process alongside the federal one, worth flagging to your lawyer early.

You may also have reporting obligations where you currently live; we’ll coordinate with your adviser there rather than cover that ground ourselves.

If your closing date is already set, don’t wait: book a free 30-minute call, and let our non-resident tax services take the certificate off your plate.

Frequently asked questions

Disclaimer: This article is general information, not personal tax advice. Section 116 outcomes turn on your residency status, your adjusted cost base, whether the property was rented, and the timing of your closing, so get advice before you close — or immediately after, if you’re already past that point.