If you are a non-resident of Canada planning to sell Canadian real estate such as a land or an rental investment property, this article is a complete guide for you.

This article will provide advice for non-residents selling Canadian real estate. It will also outline strategies, pitfalls and the general Canadian tax obligations for non-residents of Canada planning to sell Canadian real estate in 2025 onward.

Key Takeaways

• The taxable capital gains amount changed as proposed in early 2024 for dispositions on June 25, 2024 onward from 50% to 66.7%, with a $250,000 exemption. Currently, there has been no further guideline from the CRA.
• Be aware of the withholding taxes on the closing date, and rest assure steps can be taken with the right professionals to reduce your Canadian taxes and improve cash flow.
• At least 35/50% of the sales price will need to be withheld and held in trust by your lawyer until the CRA completes its process.
• Ensure you do not pay the CRA further due unnecessary late filing penalties.
• Birdi Chartered Professional Accountant specialize in non-resident taxation and can help you with this process for maximum cost savings.
• Plan your sale transaction ahead of time, a tax accountant can provide you estimates beforehand. Post pandemic the CRA has been taking 4-6+ months from the date of the T2062/T2062A request for a certificate of compliance to the issuance of the certificate. CRA previously processed these requests in 90 days at most. You would also receive the comfort letters on time if you applied.

Step 1: Non-resident capital gains withholding tax will apply on the closing date

The general tax implications for a non-resident selling property in Canada is the requirement to remit withholding taxes from the sale price at a rate of 35% for dispositions after June 25, 2024 and 25% for dispositions June 24, 2024 and prior.  The rate of 50% may apply to depreciable property such as building component.  It is common for the lawyer to do this; however, you should make sure you are aware of it. The increase in the general rate from 25% to 35% occurred because the of governments proposal to increase the taxable capital gains from 50% to 66.7% with a $250,000 exemption for the upper rate. Many tax accountants are pending further guideline from the CRA.

Example:

 If a non-resident is selling a property in Canada for $600,000, the original cost of the property was $75,000, the withholding tax would be 35% of $600,000, approximately $ 210,000 will need to be remitted to the CRA within 30 days after the closing, in case the property being sold is an investment property rented out with a depreciable component, you would have to factor in the building/land component and charge the applicable rates.

The withheld amount needs to be remitted by the lawyer to the within 30 days post the closing date. For example, if the property closing date was on October 1, by the October 30^th the funds should be remitted by the lawyer to the CRA.

Step 2: Minimize the withholding tax by filing a T2062 and/or T2062A form

As a non-resident selling property in Canada, there is a strategy you can use to minimize your withholding taxes by applying for a Section 116 Compliance Certificate before the closing date of the sale or ideally no more than 10 days after the completed sale. You can reduce the withholding tax from 35/50% of the sale price to only 35/50% of the net capital gain! The T2062 details the sale price, and the cost (ACB basis) to determine the net capital gain, and the T2062A recaptures any depreciation taken on the building asset. A professional accountant will usually calculate these amounts for you.

Example: 

If a non-resident is selling a property in Canada for $600,000, and the original cost was $75,000, the net capital gain would be $ 525,000, the withholding tax would be 25% of $250,000 plus 35% of $ 275,000 totaling an amount of $ 158,750.

The withheld taxes will be held in trust by the lawyer, once the CRA has approved the Section 116 Compliance certificate request using forms T2062/T2062A the representative for the non-resident seller will be sent payment request information letters, the lawyers will then send the appropriate payment to the CRA. Once the CRA receives the payment, they will issue the official clearance certificate to the representative of the non-resident and any remaining funds held in trust will be released to the seller accordingly.

Step 3: Plan ahead and use proven strategies to minimize taxes.

The Section 116 Clearance Certificate application can take 4-6 months to fully process so it’s important you budget with time carefully, and also consider making your closing date few months ahead. Your tax accountant in Brampton can apply for a proposed disposition certificate, this can speed up the process rather than if you applied after the closing date. You accountant in Brampton can apply for a comfort letter to keep funds in trust if the CRA is delayed in processing.

Also, be aware there is a late filing penalty of $100 per day after the 10^th day of the closing, up to a maximum of $2,500. Once you have a signed agreement of purchase and sale, you can apply for the compliance certificate. Avoid paying more to the CRA than you have to.

Here is realistic overview on a property being sold by a non-resident of Canada.

Example:

A non-resident selling property in Canada has a property ready to be sold. He would like to minimize his withholding taxes. He decides to make his closing date on the agreement of purchase sale 90 days from today.

The property is expected to be sold for $600,000 and the cost was $75,000. The goal is to avoid withholding $210,000 of tax which is the sale price of $600,000 x 35%, but instead $158,750 due to the Section 116 compliance certificate request.

He will have a tax accountant file a Section 116 T2062 and/or T2062A before the closing date of the sale or no later than 10 days after the completed sale. The lawyer will hold on to 35% of the selling price until the Section 116 Clearance Certificate is approved by the CRA. Once it has been approved and received from the seller’s representative, the lawyer will release the funds to seller above the threshold of 35% of the net capital gain.

The accountant in Brampton will also file a Canadian income tax return for the seller as a non-resident of Canada to further reduce the capital gains tax and receive refund for surplus taxes paid to the CRA.

Step 4: Minimize your Liability as the Purchaser.

Make sure as the purchaser, you have a copy of the clearance certificate for your records and it is presented before funds are released to the seller. Generally, your lawyer will take care of all this for you; however, it is still valuable to have the awareness. The clearance certificate will fully protect the purchaser from any future possible tax liability from the CRA, if the seller mentions the property is exempt from taxes be sure to request supporting proof from their tax accountant or lawyer in writing. It is also important to use a real estate agent who has experience with non-residents of Canada selling property.

Step 5: File a Canadian tax return as a non-resident.

Once you obtain the compliance certificate after paying the CRA, that is generally considered you tax obligation to Canada. However, it is usually strategic to file a Canadian tax return as a non-resident selling real estate property in Canada because you can deduct legal, accounting, and commissions costs etc. In addition, capital gains are only 50/66.7% taxable in Canada, and since you paid taxes at the net capital gain calculation on the T2062/T2062A, it will result in a refund.

Bonus Tips for a non-resident selling Canadian property

• Be sure you have filed your Section 216 income tax returns if it was a investment rental property
• Your accountant may need to apply for a Canadian ITN using T1261 if you do not have a SIN.
• Supporting documentation of sale price and original purchase price will be required.
• Major capital expenditures maybe deductible on the T2062/T2062A or on the filing of Canadian tax return as non-resident of Canada selling real estate.
• Hire an experienced realtor, lawyer and tax accountant specialized in non-resident transactions.
• Look out for UHT – Underused Housing tax, if applicable.
• Ensure your tax accountant claims any of the exemptions, especially if you converted from a primary residence to investment property.

Inconclusion:

With the correct tax advice and advance planning, as a non-resident selling property in Canada, you can minimize your withholding taxes and efficiently sell Canadian real estate. Speak with one of our tax accountants today to let us help you minimize your taxes.