The Process: Step-by-Step

Let’s go through this process here when a non-resident selling real estate in Canada needs to obtain a compliance certificate:

1.   Notify the CRA

Non-resident sellers must notify the CRA of the disposition by submitting Form T2062 within 10 days of the sale. Failure to do so can result in penalties of $25 per day, up to a maximum of $2,500. There are also two types of application request predisposition and a completed disposition request, due to the CRA processing times, it can be strategic to use the predisposition request.

2.   Calculate Capital Gains

The seller must calculate the capital gain, which is the difference between the sale price and the property’s adjusted cost base (original purchase price plus any capital improvements), along with considering the principal residence exemption and land allocation etc.

3.   Submit Payment or Security

Along with Form T2062, the seller must submit payment or acceptable security for the estimated tax on the capital gain. This is typically 25% of the gain.

4.   Receive the Certificate

Once the CRA processes the application and payment, they will issue the Certificate of Compliance. Processing times can vary, so it’s advisable to submit the application as early as possible.

Bonus Tip: Speak to your professional if you should apply for a comfort letter, as usually the CRA will take longer than 30 days to process the request. The comfort letter sent by the CRA, allows the lawyer to hold funds in trust for the CRA while they are processing the request.

After the Sale: File a Canadian Tax Return

Once your property is sold, and even if withholding tax process was handled correctly, you shoud still consider filing a Canadian income tax return for that year as in Canada only a portion of the capital gain is taxable, this can result in a tax refund. This return shows the CRA what your actual gain was and how much tax you truly owe. If too much was withheld, you may be able to claim a refund.

Without filing, you can’t recover any extra tax you paid. You must report the transaction, even if the sale resulted in no gain or you think you don’t owe anything.

Bonus Tip: Make sure your professional deducts the common selling costs such as legal fees, commissions paid, mortgage penalties etc. to optimize your taxes.

Why You Should Hire a Professional?

For a non-resident selling real estate in Canada, these rules can feel overwhelming. Between tax forms, strict deadlines, and changing rates, the process isn’t simple. Mistakes can lead to delays, financial penalties, or even issues with completing the sale.

That’s why it’s important to work with professionals who understand the tax and legal rules involved. They can help you apply for the Section 116 Certificate of Compliance, reduce your withholding tax, and make sure your tax return is filed properly.

With new changes to capital gains tax already on the way, professional support is more important than ever.

Final Thoughts

If you’re a non-resident selling property in Canada, make sure you understand the full process before listing your real estate. From high withholding taxes to the strict compliance certificate requirement, Canada has clear rules in place for non-resident sellers.

Working with a knowledgeable advisor can help you stay compliant and reduce the total tax burden on your sale.

For help navigating the process, speak with a tax professional who specializes in non-resident real estate sales. Getting expert guidance now can save you money and prevent future issues with the CRA.