If you live outside Canada and sell a home here, the sale works much like any other, with one large difference: unless the Canada Revenue Agency (CRA) has issued a clearance certificate, the buyer’s lawyer must hold back part of the price for tax. Planning ahead can make the difference between a smooth completion and a large sum tied up for months.
Who counts as a non-resident
For tax, residency depends on your ties to Canada, not your citizenship. A Canadian citizen who has moved abroad can be a non-resident; a newcomer who lives here can be a resident. If you’re unsure, ask an accountant before you list, because it changes everything below.
The clearance certificate
Under section 116 of the Income Tax Act, a non-resident selling Canadian real estate must notify the CRA, using form T2062, either before the sale or within 10 days after it. Once the CRA is satisfied that the tax on the gain has been paid or secured, it issues a certificate of compliance, often called a clearance certificate. Late or missing notice can bring penalties.
The holdback
A buyer can be liable for the seller’s tax if the seller is a non-resident and no certificate has been issued. To protect their client, the buyer’s lawyer holds back part of the purchase price in trust at completion, usually 25% of the gross price for a home, and more for some kinds of property, until the certificate arrives. If the certificate doesn’t arrive in time, the lawyer must send the holdback to the CRA.
The holdback is on the price, not the gain. On a $3,000,000 sale, that’s $750,000 held back, even if the actual tax owed is much less. Once the CRA has assessed the tax and issued the certificate, the rest is released.
Planning a sale
- Tell your agent early. Your status should be disclosed. The contract and the buyer’s lawyer will need to know.
- Engage an accountant before you list. They can work out the gain, prepare the T2062 and, where possible, file it before the sale to speed things up.
- Know your adjusted cost base. Gather the purchase documents and records of major improvements. They reduce the gain.
- Plan for the cash. If you’re buying elsewhere, don’t count on the held-back funds arriving quickly. Certificates can take months.
- File your return. You’ll still need to file a Canadian tax return for the year of the sale to report the gain, and the final tax can differ from what was held back.
- Other taxes. Depending on how the home was used, other Canadian or foreign taxes may apply, including rental income tax or the speculation and vacancy tax for the time you owned it. See The speculation and vacancy tax, explained.
Questions people ask
Was the home ever my principal residence?
If you lived in it while you were resident in Canada, part of the gain may be sheltered. The rules for years spent outside Canada are technical. Ask your accountant.
Can the buyer’s lawyer agree to a smaller holdback?
If the CRA issues a certificate before completion, or a letter confirming the amount it requires, the holdback can reflect that. Otherwise lawyers follow the standard practice to protect their client.
I’m buying from a non-resident. What should I watch for?
Your lawyer will ask the seller for a statutory declaration about residency and handle any holdback. That protects you from the seller’s tax liability.
General information as of publication. It isn’t tax or legal advice; holdback rates and CRA practice can change. Work with an accountant and a lawyer experienced with non-resident sales.