Selling Canadian Property as a Non-Resident: Why 25%–50% of Your Sale Proceeds May Be Withheld (and How to Get It Back)
- Ray Wen
- Feb 3
- 3 min read
Updated: Mar 16
If you are a non-resident of Canada selling Canadian real estate, you may be surprised to learn that 25%–50% of the selling price can be withheld at closing.
Let’s break this down in plain language — and most importantly, explain how this is not your final tax bill.
Why Is There a Withholding Tax?
Under Canadian tax rules, when a non-resident sells Taxable Canadian Property (TCP), the Canada Revenue Agency (CRA) requires a withholding tax to ensure tax compliance.
The withholding rate depends on the type of property:
Principal residence:
25% of the selling price
⚠️ 2024 Federal Budget Proposal: increase to 35% effective January 1, 2025 (Note: this is still draft legislation and has not yet become law.)
Rental or income-producing property:
50% of the selling price, due to depreciation (CCA) considerations
Yes — 50% of the gross selling price, not the gain.
Who Is Responsible for the Withholding?
Legally, under subsection 116(5) of the Income Tax Act, the purchaser — and in practice, the seller’s lawyer — is responsible for withholding and remitting the required tax to the CRA within 30 days after the end of the month in which the property is transferred. In most transactions, the withholding amount is held in the seller’s lawyer’s trust account, meaning the buyer is not personally affected after closing. It is also important to note that no interest is paid on the withheld funds while they remain in trust awaiting the issuance of the Section 116 Certificate.
This Is NOT Your Final Tax
The withholding tax is only a temporary security deposit. To reduce or recover it, the non-resident seller can apply for a Certificate of Compliance, commonly known as a “116 Certificate.”
Step 1: Make Sure You Have a Canadian Tax Number
Before applying for a Section 116 Certificate, the seller must have a Canadian tax number, either a SIN or an Individual Tax Number (ITN). If you do not already have one, it is strongly recommended to apply as early as possible — ideally as soon as you decide to sell the property. In practice, missing this step is one of the most common reasons for delays in the entire process.
Step 2: Apply for a 116 Certificate (T2062 / T2062A)
The application for a 116 Certificate is completed by filing Form T2062 or T2062A with the CRA. These forms provide key information about the transaction, including the selling price of the property, its Adjusted Cost Base (ACB), and whether the sale resulted in a capital gain or a loss. Based on this information, the CRA will collect the withholding tax based on 25% of the capital gain rather than the gross selling price, and any excess amount withheld will be released. If the property is sold at a loss, all withholding tax can be released once the certificate is issued.
The CRA may delay issuing a 116 Certificate if there are unresolved tax compliance issues. Common examples include unfiled rental income tax returns, outstanding Underused Housing Tax (UHT) filings, or previous tax balances owing. All required filings must be completed and any outstanding issues resolved, before the CRA will issue the certificate.
Final Step: File Your Canadian Income Tax Return
Receiving the 116 Certificate does not eliminate the obligation to file a Canadian income tax return for the year of sale. The seller must still report the capital gain or loss on the return and may deduct eligible selling costs, such as real estate commissions and legal fees. Normally, it will generate a further refund after the return is assessed.
In reality, this process can be lengthy and frustrating, often involving coordination among lawyers, accountants, and multiple CRA departments. In some cases, lawyers may withhold 35% of the selling price proactively, assuming that proposed legislation will eventually be enacted. In other situations, if no CRA comfort letter is received within 30 days, the lawyer may remit the entire withholding amount directly to the CRA. In mid-2025, CPA Canada and the Canadian Bar Association jointly submitted recommendations to the CRA, proposing improvements to this outdated system. Hopefully, future non-resident sellers will not have to wait more than a year to receive their sale proceeds.
Disclaimer:
Every taxpayer’s situation is unique. The strategies or topics discussed on this blog are of a general nature and should not be acted upon without seeking specialized professional advice tailored to your specific circumstances. R. Wen Professional Corporation and its authors are not responsible for any decisions made or actions taken in reliance on the information provided on this blog.
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