The Buyer Owes The Seller's Tax

A buyer completes on a property, pays the full price, and takes the keys. Some weeks later they learn that the seller lived abroad, that no certificate was obtained, and that a quarter of the money they have already handed over is owed by them personally to the Receiver General.

A Note On Currency

Everything here is stated as verified in August 2026 and requires confirmation before reliance.

We obtained parts of subsections 116(5) and 116(5.3) from the statute[1], both partially truncated, and take the remainder from CRA guidance and commentary.

We did not obtain the definition of taxable Canadian property, and this article does not tell you whether any given property is within it. That is the first question in every real case and we do not answer it.

We did not obtain subsection 116(5.01), the treaty-exemption route, and describe it only as one commentary source sets out its conditions[5]. That source is dated 2012.

Processing times and the depreciable property formula come from commentary rather than CRA[6], and are stated as reported.

This is not tax or legal advice. A real transaction needs advisers on both sides before closing, which is much of this article's point.

The Third Of Three

Where this sits in the series. This section is our own analysis.

This publication has described two other regimes that put a Canadian payer on the hook for a non-resident's tax.

Regulation 102 requires withholding on a non-resident employee's Canadian employment income, even where a treaty will exempt them.

Regulation 105 requires withholding on fees paid to a non-resident for services rendered in Canada.

Section 116 completes the set, covering dispositions of taxable Canadian property.

Three features are common to all three.

The obligation falls on the Canadian side of the transaction, not on the non-resident who owes the tax.

It applies regardless of whether tax is ultimately payable, which is what makes each of them surprising.

And the person bearing it frequently does not know the counterparty is non-resident, which is where the exposure comes from.

Section 116 is the most severe of the three, for a reason set out below: its base is gross rather than net, and the amounts in a property transaction are large.

What Section 116 Is For

CRA's own statement of the object.

CRA states that the general purpose of section 116 is to establish a procedure to collect tax on capital gains realized by non-resident vendors on a disposition of TCP and certain other property that is not otherwise excluded[4].

Its information circular describes the mechanism: non-resident vendors who dispose of certain taxable Canadian property have to notify the CRA about the disposition either before they dispose of the property or within ten days after the disposition. When CRA has received either an amount to cover the tax on any gain the vendor may realize, or appropriate security for the tax, the CRA will issue a certificate of compliance to the vendor, and a copy of the certificate is also sent to the purchaser. If the purchaser does not receive such a certificate, the purchaser is required to remit a specified amount to the Receiver General and is entitled to deduct the amount from the purchase price[7].

Two observations, ours.

The design is a collection mechanism, not a tax. The tax is the vendor's; section 116 is how Canada gets hold of it before the vendor and the money leave.

And the purchaser is used as the collection point because the purchaser is the last person in the chain holding money that belongs to the vendor.

That is rational, and it produces the outcomes described in the rest of this article.

The Liability Sits With The Purchaser

The operative provision, quoted as far as we obtained it.

Subsection 116(5) provides that a purchaser who has acquired property from a non-resident person, unless (a) after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada, (a.1) subsection (5.01) applies to the acquisition, or (b) a certificate under subsection 116(4) has been issued to the purchaser by the Minister in respect of the property, is liable to pay, and shall remit to the Receiver General within 30 days after the end of the month in which the purchaser acquired the property, as tax under this Part for the year on behalf of the non-resident person, 25% of the amount, if any, by which (c) the cost to the purchaser of the property so acquired exceeds (d) the certificate limit fixed by the certificate, if any, issued under subsection 116(2)[1].

The provision goes on to state that the purchaser is entitled to deduct or withhold from any amount paid or credited by the purchaser to the non-resident person or otherwise recover from the non-resident person any amount paid by the purchaser[1].

Commentary states the consequence plainly: if the purchaser fails to comply with the non-resident withholding tax regime, it becomes liable for the non-resident's tax[2].

Two observations, ours.

The words is liable to pay are unqualified. This is not a duty to withhold that becomes a liability on default; the purchaser is directly liable.

And the right of recovery in the closing words is a right against the vendor, which is worth exactly as much as the vendor's willingness and reachability. That is discussed further below.

The Base Is The Price, Not The Gain

The feature that makes this severe, and it is easy to read past.

The provision computes 25 percent of the cost to the purchaser of the property[1], reduced by any certificate limit.

Commentary draws the contrast explicitly: where CRA does not receive notification and therefore does not issue a certificate, the purchaser is liable to withhold 25 percent of the purchase price, as opposed to 25 percent of the capital gain in the compliant scenario[3].

Our own arithmetic on what that gap looks like.

A property bought for $900,000 and sold for $1,000,000 produces a gain of $100,000. Twenty-five percent of the price is $250,000; twenty-five percent of the gain is $25,000. A factor of ten.

A property bought for $300,000 and sold for $1,000,000 produces a gain of $700,000. The same $250,000 against $175,000, a factor of about 1.4.

Two observations, ours.

The gap is widest where the gain is smallest, which is the opposite of how a collection mechanism would be designed if proportionality were the object.

It is a blunt instrument by intention. Without a certificate, CRA does not know the vendor's cost, so it cannot compute a gain. It takes a fixed share of the only number it can see.

The Vendor Who Sold At A Loss

The case worth sitting with, computed by us.

A property bought for $900,000 and sold for $850,000. The vendor has lost fifty thousand dollars and owes no Canadian tax on the disposition at all.

Absent a certificate, the withholding is 25 percent of $850,000, being $212,500.

Three consequences, ours.

The amount bears no relationship whatever to any liability. There is no liability.

It is recoverable, but only by filing a Canadian tax return for the year of disposition, which commentary confirms as the route to a refund of excess withholding[6][8].

And that means a non-resident who has just taken a loss on a Canadian property must engage with the Canadian tax system for a further year to get their own money back.

Our own observation is that this is why the certificate process exists and why it is worth its cost. The alternative is not a smaller withholding. It is a much larger one, followed by a wait.

Fifty Percent On Some Property

A higher rate for a defined category.

Subsection 116(5.3) provides that where a taxpayer has acquired from a non-resident person property referred to in subsection 116(5.2), the taxpayer, subject to the same exceptions, is liable to pay, as tax under this Part for the year on behalf of the non-resident person, 50% of the amount, if any, by which (i) the amount payable by the taxpayer for the property so acquired exceeds a further amount[1]. The provision is truncated in the extract we obtained and we do not complete the formula.

CRA identifies the property within subsection 116(5.2), reported on forms T2062A and T2062B, as depreciable property; life insurance policies; Canadian resource property; timber resource property; and property, other than capital property, that is real property situated in Canada, being inventory of land, or any interest in or option in respect of such property[8].

Commentary describes the depreciable property computation as 50 percent of the amount by which proceeds exceed the undepreciated capital cost[6]. We report that as stated and note we did not verify it against the truncated statutory text.

Our own observation is that the category is broad enough to catch a common case: a rental building on which capital cost allowance has been claimed is depreciable property, so a non-resident landlord selling a rental property is in the 50 percent stream rather than the 25 percent one.

Three Ways Out, And Only One Is Reliable

The exceptions, as the provision sets them out. This assessment of their relative worth is ours.

The three are: reasonable inquiry leaving no reason to believe the vendor was non-resident; the application of subsection 116(5.01); and a certificate under subsection 116(4) issued to the purchaser[1].

They are not equivalent in practice.

The first is a state of mind supported by process, and it is judged after the fact by someone who now knows the answer.

The second requires three separate conditions to hold, one of which is about a treaty the purchaser has probably not read.

The third is a document. It either exists or it does not.

Our own conclusion is that a purchaser relying on anything other than the third has accepted a risk they may not have priced. The sections below take each in turn.

What Reasonable Inquiry Is Worth

The first exception, and the one most often relied on by default rather than by decision.

Commentary states that a purchaser has no liability to remit if, after making reasonable inquiry, it had no reason to believe that the vendor was not a resident of Canada[5]. CRA describes the same exception in its roundtable answer[4].

Three observations, ours.

The test has two limbs: an inquiry that was reasonable, and an absence of any reason to believe. Failing either loses the exception.

The standard is not the vendor said they were resident. A statutory declaration of residence is evidence, and is not the same thing as an inquiry.

And the facts that would have given a reason to believe are frequently visible on the file: an overseas address for correspondence, funds directed abroad, a power of attorney, an agent signing.

Our own view is that this exception protects a purchaser who genuinely could not have known, and does very little for one who did not look. It is a defence, not a plan.

We did not research how CRA or the courts have applied it, and this section is an assessment of its shape rather than of its case law.

The Treaty Route Has Three Conditions

The second exception, reported from a source we flag.

Commentary describes the exemption as requiring that (1) the purchaser must, after making reasonable inquiry, believe that the vendor is resident in a country with which Canada has a tax treaty, (2) the vendor must be exempt from Canadian tax on any gains on the property under that tax treaty, assuming the vendor had such gains and was in fact resident in that other country, and (3) the purchaser must provide required notification to CRA[5].

We did not obtain subsection 116(5.01) itself, and the source is dated 2012. We report the conditions as stated and do not treat them as current.

Two observations, ours.

The second condition asks the purchaser to conclude that a treaty exempts a gain. For Canadian real property that is a demanding conclusion, because treaties commonly preserve the source country's right to tax gains on immovable property.

And the third condition is a positive obligation on the purchaser: notification to CRA. A purchaser who believes the route applies and files nothing has not satisfied it.

Our own reading is that this route is real but narrow, and that it works best where the property is not real estate. Anyone relying on it needs the provision and the treaty article, not this summary.

The Certificate Is The Real Answer

The third exception, and the one the system is built around.

Commentary states that the non-resident can relieve the purchaser's burden by obtaining a clearance certificate pursuant to section 116(2) or 116(4) by filing Form T2062 or T2062A, and paying the calculated amount of the tax directly to CRA, and that non-residents must first obtain a Canadian tax identification number prior to submitting a request[3].

CRA's roundtable answer explains the mechanism from the vendor's side: by requesting a certificate by paying to the Receiver General the estimated amount of tax or by furnishing acceptable security upon notifying CRA of the proposed or concluded disposition, the remittance liability of the purchaser under subsection 116(5) could be decreased or eliminated[4].

Two observations, ours.

The certificate carries a certificate limit, and subsection 116(5) withholds on the excess of cost over that limit[1]. So a certificate obtained for a lower figure than the eventual price leaves a residual obligation.

Commentary is explicit that obtaining a certificate is technically optional for the nonresident, but that choosing not to apply can have real financial consequences[3].

Which is the heart of it, and this is ours. The person with the option is the vendor. The person with the liability is the purchaser. Those are different people, and the second cannot compel the first except commercially.

The Timing Does Not Work By Accident

The scheduling problem, and it explains why so many transactions close without a certificate. This section is our own analysis of the reported figures.

CRA's notification deadline under subsection 116(3) is within ten days after disposition[8][7].

Commentary reports that CRA aims to process T2062 applications within six to eight weeks of receiving a complete application, and advises applying a minimum of 30 to 45 days before closing where there is a fixed closing date[6].

Put those together and the conclusion is unavoidable.

A vendor who complies with the ten day rule after disposition cannot produce a certificate at closing, because closing has already happened and processing takes weeks.

So the compliant route is subsection 116(1), the proposed disposition, before the transaction. CRA's circular states that a vendor may submit notice of a proposed disposition and should send this notice at least 30 days before the property is actually disposed of, so that CRA can review the transaction and, if possible, issue a T2064 certificate before the actual date of disposition[7].

Our own observation is that this makes section 116 a pre-closing item rather than a post-closing one, and a transaction where it first comes up at the closing table has already failed.

Ten Days, And A Penalty That Does Not Bite

The sanction on the vendor's side, which is smaller than the exposure it fails to prevent.

CRA states that subsection 116(3) requires non-resident vendors to notify CRA within ten days of disposing of taxable Canadian property, and that vendors who fail to do so will be liable to a penalty under subsection 162(7) of $25 a day for each day the notification is late, with a minimum of $100 and a maximum of $2,500[8].

Commentary reports the same penalty and adds that CRA may hold back 25 to 50 percent of the proceeds until compliance[9].

Our own arithmetic on the penalty scale: ten days late is $250; forty days late, $1,000; one hundred days late, the cap at $2,500, and it does not rise thereafter.

Two observations, ours.

Against a withholding of $250,000 on a million dollar property, a maximum penalty of $2,500 is one percent of the amount at stake.

Which means the penalty is not the deterrent. The withholding is. A vendor who ignores the ten day rule faces a modest fine and a very large sum held back.

CRA notes that vendors can apply under the taxpayer relief provisions to waive or cancel the penalty where notification was late due to circumstances beyond their control[8].

Where The Ten Days Does Not Apply

A carve-out worth knowing.

CRA states that non-resident vendors are not subject to the ten-day timeframe for all proposed dispositions under subsection 116(1), and for dispositions pursuant to subsection 116(5.2) reported on forms T2062A and T2062B, being the depreciable property, life insurance, resource, timber and land inventory categories listed earlier[8].

Two observations, ours.

The first exclusion is logical rather than generous. A proposed disposition has not happened, so a deadline running from disposition cannot apply.

The second means that the 50 percent categories run on a different timetable from ordinary capital property, which a vendor holding a rental building needs to establish rather than assume.

We did not obtain what timetable applies instead, and do not state one.

The Purchaser's Own Residence Is Irrelevant

A point stated flatly in CRA's circular and worth isolating.

CRA states that the purchaser's domicile or country of residence is not relevant in determining if section 116 applies, and that the purchaser may be either a Canadian resident or a non-resident[7].

Two consequences, ours.

A non-resident buying from a non-resident is within the provision. Neither party is Canadian, and the obligation still arises because the property is.

And that population is least likely to know, because both sides may be advised outside Canada on a transaction they think of as being between two foreign parties.

The unifying principle is that section 116 attaches to the property, not to the people. What makes it apply is the property being taxable Canadian property, which is the definitional question this article does not answer.

The Vendor Who Leaves Before Closing

A timing trap in the circular.

CRA states that if a vendor is contemplating selling the property to which section 116 applies, and the vendor is a Canadian resident before the property is disposed of, but will be a non-resident when the property is finally disposed of, section 116 will apply[7].

Three consequences, ours.

Residence is tested at the disposition, not at listing, not at the agreement of purchase and sale, and not when the parties first met.

So a vendor who emigrates between agreement and closing converts an ordinary sale into a section 116 transaction, and the purchaser's obligation arises from a change in someone else's circumstances.

And a purchaser who made a reasonable inquiry at the time of the agreement may have received an accurate answer that has since ceased to be true.

Our own practical instruction is narrow: the inquiry has to be current at closing, not merely made at some point. A sale with a long closing period is where this arises.

The Purchaser Can Simply Insist

A commercial observation CRA itself makes.

CRA's roundtable answer records that in situations where the purchaser insists on bearing no risk under subsection 116(5), even when the vendor believes that the property is not TCP, the vendor might consider requesting a clearance certificate under the relevant subsections[4].

Two observations, ours.

CRA is describing a negotiated outcome, not a legal one. The purchaser has no power to compel a certificate; it has the power to decline to close without one.

And the scenario CRA contemplates is one where the vendor believes the property is not taxable Canadian property at all. Even then, a purchaser unwilling to accept the characterisation risk can require the certificate.

That is worth stating for anyone advising a purchaser. Where the definitional question is genuinely arguable, the purchaser is not obliged to arbitrate it. It can price it, or refuse it, and the vendor's route to resolving the impasse is the certificate.

The Comfort Letter

An intermediate device, reported from commentary.

Commentary describes CRA issuing a comfort letter before the remittance due date, which authorizes the purchaser to continue holding the relevant amount, being 25 percent of the purchase price for non-116(5.2) property, until further instructed by the CRA, and notes that this suspends but does not eliminate the remittance obligation[5].

Two observations, ours.

It solves a timing problem, not a liability problem. Where an application is in progress but the 30 day remittance deadline is approaching, it prevents the purchaser having to remit an amount that a certificate may shortly reduce.

And it requires the purchaser to actually be holding the money, which returns to the practical mechanism discussed two sections below.

We flag that this description comes from a source dated 2012, and that we did not verify current practice.

Recovering It Afterwards

What happens to an over-withheld amount.

Commentary states that where tax was withheld and the non-resident was not taxable, they may file a Canadian tax return, T1 or T2, to claim a refund[9], and that after filing for the year of the disposition, any withholding in excess of the actual tax owing on the gain is refunded[6].

Three observations, ours.

The money is not lost, and it is important to say so, because the figures earlier in this article are alarming and are not a final cost.

But the recovery requires a Canadian filing obligation the vendor may not otherwise have had, in a subsequent year, with the attendant cost and delay.

And the vendor's cash is committed in the meantime, which matters most to precisely the vendor whose sale produced little or no gain.

Our own summary of the economics: non-compliance does not usually create a permanent tax cost. It creates a very large interest-free loan to the Crown, made by someone who did not choose to make it.

The Holdback Is The Practical Answer

How this is handled in practice, and it follows from everything above. This section is our own analysis.

The purchaser's statutory right is to deduct or withhold from any amount paid or credited to the non-resident[1]. That right is worth something only while the purchaser still holds money.

So the mechanism is a holdback at closing: the purchase price less the applicable percentage, retained pending a certificate.

Three consequences.

The holdback has to be agreed in the purchase agreement, because a purchaser cannot unilaterally withhold from a price it has contracted to pay in full.

It has to be sized on the correct percentage, which depends on whether the property falls within subsection 116(5.2).

And it has to be held rather than spent, since the remittance falls due 30 days after the month end regardless of whether a certificate is in progress.

The failure mode is the one described at the top of this article: a purchaser who paid the full price to a vendor now abroad, holding a statutory right of recovery against someone who has no reason to cooperate and may be beyond practical reach. The right exists. Enforcing it is a civil matter in another country.

What The Auditor Actually Examines

The enquiry in practice. This section is our own analysis.

Property transfers, against the residence of the vendor at the date of disposition.

Whether a certificate was issued, and its certificate limit against the actual price.

Whether the purchaser remitted, and within 30 days after the month end.

The inquiry the purchaser made, where the reasonable inquiry exception is relied on.

Correspondence addresses, payment directions and powers of attorney, which are where a reason to believe usually sits.

Whether the property was within subsection 116(5.2), which changes the rate.

Prior capital cost allowance claims, which put a rental building into the depreciable stream.

The fifth item deserves emphasis. The purchaser's own file usually contains the evidence that decides whether it had a reason to believe, and it was assembled by a conveyancer who was not thinking about section 116.

What Records Survive

The residence inquiry, in writing, dated, and repeated at closing on a long transaction.

Any statutory declaration of residence obtained from the vendor, noting it supports an inquiry rather than replacing one.

The certificate, with its certificate limit, and the arithmetic comparing that limit to the price.

The holdback agreement in the purchase documents.

Evidence the holdback was retained and not applied elsewhere.

The remittance, with its date against the 30 day deadline.

Any comfort letter and the correspondence supporting it.

What To Do

Establish the vendor's residence before agreeing terms, and again at closing. Residence is tested at the disposition, and a vendor can emigrate in between.

Treat this as a pre-closing item. Reported processing runs to six to eight weeks against a ten day post-disposition deadline, so the certificate has to be started before the transaction.

Use subsection 116(1) for a proposed disposition. CRA's circular advises notice at least 30 days before disposal so a certificate can issue beforehand.

Agree a holdback in the purchase agreement. The statutory right to withhold is only useful while the purchaser still holds the money.

Check the certificate limit against the actual price. Withholding applies to the excess of cost over the limit.

Establish whether the property is within subsection 116(5.2). A rental building on which capital cost allowance has been claimed is depreciable property, and the rate is 50 percent.

Do not rely on reasonable inquiry as a plan. It has two limbs and is judged afterwards by someone who knows the answer.

Do not assume a treaty helps with real property. The route has three conditions including a positive notification obligation on the purchaser.

Remember the penalty is not the risk. A maximum of $2,500 sits against a withholding that can be a hundred times larger.

Tell the vendor the recovery route exists. Excess withholding is refunded on filing a Canadian return, which makes the certificate a cash flow question rather than a permanent cost.

The Limits Of This Analysis

Several caveats matter. This is not tax or legal advice. Everything is stated as verified in August 2026 and requires confirmation. We did not obtain the definition of taxable Canadian property, and this article does not tell you whether any given property is within it, which is the first question in every real case. We obtained parts of subsections 116(5) and 116(5.3) only, both truncated, and do not complete the subsection 116(5.3) formula. We did not obtain subsection 116(5.01) and describe the treaty route only as one commentary source sets out its conditions; that source is dated 2012, as is the comfort letter description. The depreciable property computation and the reported processing times come from commentary rather than CRA and are stated as reported. We did not research how CRA or the courts have applied the reasonable inquiry exception, and our assessment of its shape is not an assessment of its case law. We did not obtain what notification timetable applies to subsection 116(5.2) dispositions in place of the ten day rule. We did not research the vendor's underlying tax computation, the capital gains inclusion rate applicable to any year, treaty articles on immovable property, provincial land transfer or speculation taxes, the GST/HST treatment of the same transaction, or the position where the property is held through a partnership or trust. All arithmetic is our own, uses hypothetical figures, and is illustrative only. The trilogy framing, the assessment of the three exceptions, the timing analysis and the holdback discussion are our own.

Related Reading

Compliance & Reporting Fifteen Percent Of Everything The same structure applied to services rendered in Canada by a non-resident. Payroll Withhold Anyway The employment limb of the same idea, where withholding is required even under a treaty exemption. Corporate Tax The Twenty-One Year Rule Where a non-resident beneficiary turns a planned rollout into a disposition with certificate obligations attached.

Frequently Asked Questions

Who actually owes the withholding?

The purchaser. Subsection 116(5) makes the purchaser liable to pay and to remit within 30 days after the end of the month of acquisition, unless a certificate was issued, the treaty route applies, or after reasonable inquiry there was no reason to believe the vendor was non-resident.

Is it 25 percent of the gain?

No. It is 25 percent of the cost of the property to the purchaser, less any certificate limit. Commentary contrasts that with 25 percent of the gain in the compliant scenario. On a property bought for $900,000 and sold for $1,000,000, that is $250,000 against $25,000.

What if the vendor sold at a loss?

The withholding still applies, because it is computed on price rather than gain. On a sale at $850,000 the amount is $212,500, against no tax liability at all. It is recoverable by filing a Canadian return for the year of disposition, which is a delay rather than a permanent cost.

The vendor said they were resident. Are we protected?

Not necessarily. The exception requires both a reasonable inquiry and no reason to believe otherwise. A declaration supports an inquiry rather than replacing one, and the facts that create a reason to believe are often already on the file: an overseas address, funds directed abroad, an agent signing.

Can we just get the certificate after closing?

The timing does not permit it. The notification deadline is ten days after disposition while reported processing runs six to eight weeks. CRA's circular directs vendors to give notice of a proposed disposition at least 30 days beforehand, so this is a pre-closing item.

We are buying a rental property. Does anything change?

Possibly the rate. Depreciable property falls within subsection 116(5.2), where the rate is 50 percent rather than 25. A building on which capital cost allowance has been claimed is depreciable property, so a non-resident landlord's sale is in the higher stream.

References

1. Government of Canada. Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 116, as published, on subsection 116(5) providing that a purchaser who acquires property from a non-resident person, unless after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada, or subsection 116(5.01) applies, or a certificate under subsection 116(4) has been issued to the purchaser, is liable to pay and shall remit to the Receiver General within 30 days after the end of the month in which the purchaser acquired the property, as tax on behalf of the non-resident person, 25 percent of the amount by which the cost to the purchaser of the property exceeds the certificate limit fixed by any certificate issued under subsection 116(2); on the purchaser being entitled to deduct or withhold from any amount paid or credited to the non-resident person or otherwise recover from that person any amount paid; and on subsection 116(5.3) imposing liability at 50 percent in respect of property referred to in subsection 116(5.2), subject to the same exceptions. Note: primary legislation. Both subsections were obtained in truncated form and we do not complete the subsection 116(5.3) formula. laws-lois.justice.gc.ca
2. Thomson Reuters Practical Law Canada. Section 116 Clearance Certificate, on the position that, subject to certain exemptions, if the parties do not obtain a certificate with an appropriate certificate limit on closing, the purchaser must withhold a portion of the purchase price and remit it to CRA on account of the non-resident vendor's liability; on the amount withheld having to be remitted within 30 days of the month end in which the sale closed; and on the purchaser becoming liable for the non-resident's tax if it fails to comply with the non-resident withholding tax regime. Note: a commercial legal practice service. practicallaw.thomsonreuters.com
3. RSM Canada. Are You Selling Your Property in Canada?, on subsection 116(5) requiring the purchaser to remit 25 percent of the purchase price within 30 days after the end of the month in which the property was acquired unless the purchaser has made reasonable inquiry and believes the vendor is resident in Canada, or the property would be exempt under a tax treaty; on the additional withholding burden deterring purchasers from dealing with non-residents; on the non-resident being able to relieve that burden by obtaining a clearance certificate under section 116(2) or 116(4) by filing Form T2062 or T2062A and paying the calculated tax directly to CRA; on non-residents needing to obtain a Canadian tax identification number before requesting a certificate; on obtaining a certificate being technically optional but with real financial consequences if not sought; and on the purchaser otherwise being liable to withhold 25 percent of the purchase price as opposed to 25 percent of the capital gain in the compliant scenario. Note: an accounting firm publication. rsmus.com
4. Canada Revenue Agency, 2022 CTF Roundtable Question 2, 2022-0950501C6, Section 116 and Taxable Canadian Property, as reproduced by a tax publication service, on the general purpose of section 116 being to establish a procedure to collect tax on capital gains realized by non-resident vendors on a disposition of TCP and certain other property not otherwise excluded; on the position where a purchaser insists on bearing no risk under subsection 116(5) even when the vendor believes the property is not TCP, in which case the vendor might consider requesting a clearance certificate under subsection 116(2) or 116(4) by paying the estimated tax or furnishing acceptable security, thereby decreasing or eliminating the purchaser's remittance liability; on the purchaser being entitled to deduct or withhold the amount remitted from the purchase price; on failure to remit potentially resulting in penalties and interest in the hands of the purchaser in addition to the tax payable on the capital gain; and on the exception where after reasonable enquiry the purchaser has no reason to believe the vendor was non-resident. Note: a roundtable answer accessed through a secondary reproduction. taxinterpretations.com
5. Tax Analysts. (2012). Canada's Section 116 System for Nonresident Vendors of Taxable Canadian Property, on a purchaser having no liability to remit if, after making reasonable inquiry, it had no reason to believe that the vendor was not a resident of Canada; on the treaty exemption requiring that the purchaser must after reasonable inquiry believe the vendor is resident in a treaty country, that the vendor must be exempt from Canadian tax on any gains under that treaty, and that the purchaser must provide required notification to CRA; and on a CRA comfort letter issued before the remittance due date authorising the purchaser to continue holding the relevant amount, being 25 percent of the purchase price for non-116(5.2) property, until further instructed, which suspends but does not eliminate the remittance obligation. Note: a specialist tax publication dated 2012; we did not obtain subsection 116(5.01) itself and do not treat these conditions as current. businesstaxcanada.com
6. Insight Accounting CPA. Non-Resident Tax Filing Requirements in Canada: Section 116 Clearance Guide, on section 116 imposing a withholding obligation on the purchaser rather than the vendor; on the purchaser having to withhold and remit 25 percent of the gross purchase price where no certificate is in hand at closing, regardless of the actual capital gain; on depreciable property attracting withholding of 50 percent of the amount by which proceeds exceed undepreciated capital cost; on the withholding being remitted within 30 days after the end of the month of closing; on failure to withhold making the purchaser personally liable for the withholding amount plus interest; on CRA aiming to process T2062 applications within six to eight weeks of a complete application, with a recommendation to apply a minimum of 30 to 45 days before a fixed closing; and on excess withholding being refunded after filing a Canadian return for the year of disposition. Note: an accounting firm publication dated February 2026; the processing times and the depreciable property formula are as reported by this source rather than by CRA. insightscpa.ca
7. Canada Revenue Agency. Information Circular IC72-17R6, Procedures Concerning the Disposition of Taxable Canadian Property by Non-Residents of Canada, Section 116, on non-resident vendors having to notify CRA either before disposing of the property or within ten days after the disposition; on CRA issuing a certificate of compliance once it has received an amount to cover the tax on any gain or appropriate security, with a copy sent to the purchaser; on the purchaser being required to remit a specified amount and being entitled to deduct it from the purchase price where no certificate is received; on section 116 applying where a vendor is a Canadian resident before disposal but will be a non-resident when the property is finally disposed of; on the purchaser's domicile or country of residence not being relevant, the purchaser being able to be either resident or non-resident; and on a vendor being able to submit notice of a proposed disposition under subsection 116(1), which should be sent at least 30 days before disposal so that CRA can review the transaction and if possible issue a T2064 certificate before the actual date of disposition. Note: a CRA information circular. canada.ca
8. Canada Revenue Agency. Failure to Comply Penalty: Non-Resident Vendor Notification on the Disposition of Taxable Canadian Property, on subsection 116(3) requiring non-resident vendors to notify CRA within ten days of disposing of taxable Canadian property; on failure to do so attracting a penalty under subsection 162(7) of $25 a day for each day the notification is late, with a minimum of $100 and a maximum of $2,500; on a tax services office not issuing a certificate of compliance until it receives payment or acceptable security for the taxes payable under subsection 116(4) on the gain; on the ten-day timeframe not applying to all proposed dispositions under subsection 116(1) or to dispositions pursuant to subsection 116(5.2) reported on forms T2062A and T2062B, being depreciable property, life insurance policies, Canadian resource property, timber resource property, and property other than capital property that is real property situated in Canada or any interest or option in respect of such property; and on non-resident vendors being able to apply under subsection 220(3.1) to waive or cancel the penalty where notification was late due to circumstances beyond their control. Note: a CRA primary guidance page. canada.ca
9. SpenceDrake Tax Law. Taxable Canadian Property and Section 116, on a non-resident disposing of TCP having to notify CRA by submitting Form T2062 or T2062A within ten days of the disposition, or earlier for a proposed transaction; on failure to file potentially resulting in a penalty of $25 a day up to $2,500, with CRA able to hold back 25 to 50 percent of the proceeds until compliance; on the purchaser being responsible for withholding and remitting 25 percent of the gross proceeds, or sometimes more depending on the property, unless a clearance certificate is provided; on the buyer potentially being liable for the entire withholding amount if a certificate is not provided; on a non-resident being able to apply for a certificate based on a treaty exemption where a treaty exempts the gain; and on a non-resident who was not taxable being able to file a Canadian return to claim a refund of tax withheld. Note: a tax law firm publication dated May 2025. sdtaxlaw.ca

This article is provided for general informational purposes and is not tax or legal advice. The definition of taxable Canadian property was not obtained and this article does not determine whether any given property is within it. Subsections 116(5) and 116(5.3) were obtained in truncated form; subsection 116(5.01) was not obtained. Processing times and the depreciable property formula are as reported by commentary. Two descriptions rely on a source dated 2012. All arithmetic is the authors' own and is illustrative only.