Selling property in Canada can be a great investment, but if you’re a non-resident, there are certain tax rules you need to follow. At Tax Return Filers Ltd., we help non-residents with Canadian tax obligations when selling their real estate. Here’s what you need to know to avoid penalties and other surprises and get your refund.
1. Withholding Tax on the Sale is usually 25% of the Gross Sales
When a non-resident sells Canadian real estate, the Canada Revenue Agency (CRA) requires the buyer’s lawyer to withhold 25% of the sales proceeds (in some cases up to 50% of gross sales proceeds) until the seller provides a certificate of compliance from CRA. CRA processing time for a certificate of compliance varies, but in most cases, it is around 6-9 months. The capital gain calculated at this stage is taxed at a 25% rate, but this is not the final tax you’ll owe: it’s a prepayment. To get some (or all) of this back, you must file the right paperwork and S.116 tax return after the certificate of compliance is obtained. If the seller fails to get the certificate of compliance, then the buyer’s lawyer will remit the withheld amount, which is 25% of gross sales, to CRA.
2. How to Recover 25% of Gross Sales Proceeds Tax: File a Certificate of Compliance (T2062/T2062A)
Instead of paying 25% on the gross sale price, you can apply for a Certificate of Compliance by filing Form T2062 or T2068 with the CRA. Here’s how it works:
You or your representativemust apply within 10 days of the sale closing date or 30 days before closing. If filed after the 10 days of the closing date, CRA will charge a penalty of $25 per day up to a maximum of $2500 plus interest.
Along with the application for a certificate of compliance, you must pay 25% of the capital gain.
The CRA will review your application (processing time up to 6-9 months).
Once approved, the CRA will issue a Certificate of Compliance, and your lawyer can release the withheld funds.
Why is this important?
If you don’t file the Certificate of Compliance, the full 25% withholding tax applies, even if your actual tax liability is lower.
- Filing ensures you only pay tax on the profit (capital gain), not on the gross sales.
- Once CRA issues a Certificate of Compliance, your lawyer will release the withheld funds.
3. Filing a Canadian Tax Return to Claim a Refund
Even after getting the Certificate of Compliance, non-residents must file a Canadian tax return for the year of the sale. This is where you can get back more of your withheld tax by:
- Claiming Selling expenses such as realtor commissions, legal fees, repairs, etc.
- Applying the personal tax credit rules applies
- Reporting the capital gain accurately,and 50% of the gain is taxable. Many non-residents get a tax refund because the initial 25% withholding is often higher than their actual tax liability.
4. Deadlines & Penalties
- Certificate of Compliance (Form T2062/T2062A): Due within 10 days of closing.If filed after the 10 days of the closing date, CRA will charge a penalty of $25 per day up to a maximum of $2500 plus interest.
- T1 Non-Resident Return Under S.116: Due by April 30 of the following year.
NOTE: Missing deadlines can lead to penalties and interest, so it is advisable to work with a tax professional.
Let the Tax Return Filers Ltd. Handle Your Filing!
Navigating Canadian tax rules as a non-resident can be complex, but our experts specialize in:
- Certificate of Compliance Applications
- Non-Resident Canadian Tax Returns
- Capital Gains Reporting & Refund Maximization