Selling Canadian Property as a Non Resident: Section 116 Clearance Certificates Explained

If you live outside Canada and you are selling a Canadian property, there is one number you need to understand before anything else happens: 25%.

Quick Answer: Without a Certificate, 25% of the Gross Price Is Withheld

Not 25% of your profit. Twenty five percent of the entire sale price.

Sell a $1.2 million condo and $300,000 comes off the top and sits with CRA until you sort it out. It does not matter that your actual gain was $300,000 and your actual tax might be $60,000. Until CRA issues a certificate of compliance under section 116 of the Income Tax Act, the buyer is legally required to hold that money back, because if they do not, the buyer becomes liable for the tax.

That is why your lawyer will not release the funds. They are not being difficult. They are protecting a buyer who is personally on the hook.

The good news: with planning, the withholding drops to roughly 25% of the gain rather than the price, and on our example that is about $75,000 instead of $300,000. The bad news: the process takes months, and it starts with a deadline only ten days after closing.

To find an accountant in Coquitlam, you can visit the following page: Tax Accountant Coquitlam  

Are You a Non Resident for This Purpose?

Residency for tax is not the same as citizenship or immigration status. CRA looks at residential ties.

Primary ties: a home available to you in Canada, a spouse or common law partner in Canada, dependants in Canada.

Secondary ties: bank accounts, credit cards, a driver’s licence, provincial health coverage, memberships, personal property.

A Canadian citizen living in Dubai for six years with no home, no spouse and no dependants in Canada is very likely a non resident, and section 116 applies to them exactly as it would to someone who has never set foot in the country. A permanent resident who moved to Seattle for work but kept the family home in Burnaby may well still be a resident. Passport colour is irrelevant.

If your status is genuinely unclear, resolve it before you list the property. It changes everything downstream.

What Triggers Section 116

Section 116 applies to a disposition of taxable Canadian property, and disposition is broader than sale.

It includes:

• Selling a house, condo, or vacant land
• Gifting property to a child or family member
• Transferring property to a corporation or trust
• Adding or removing someone from title
• A deemed disposition on death
• Selling shares of a corporation whose value is mostly Canadian real property

There is no money changing hands in a gift, and yet withholding still applies, calculated on fair market value. Families transferring a Vancouver property to the next generation discover this constantly, usually at the worst possible moment.

How Much Money Is Actually Held Back

The default withholding is:

• 25% of the gross proceeds for most taxable Canadian property, such as a personal use property or a vacant lot
• 50% on the portion attributable to depreciable property, which typically means a rental property where capital cost allowance was claimed

That second rate is the one that surprises rental property owners. If you claimed CCA over the years, part of your sale price is treated as depreciable property and attracts 50% withholding, not 25%.

Worked Example on a $1.2 Million Sale With a $300,000 Gain

Purchase price years ago: $900,000. Sale price today: $1,200,000. Gain: $300,000.

Same sale. Same tax ultimately owing. A difference of $225,000 in cash flow, for months.

The Higher Withholding on Depreciable Rental Property

Say the same property was rented and you claimed $80,000 of CCA over the years. On sale, that $80,000 comes back as recapture, taxed as ordinary income at your full marginal rate rather than at capital gains rates. The withholding on the depreciable portion is calculated at 50%, and the certificate application requires a separate form.

This is a good reason to think twice about claiming CCA on a Canadian rental you plan to sell as a non resident. The deduction was worth 25% or so at the time. The recapture is taxed at up to 50% later.

The Clearance Certificate Process, Step by Step

The 10 Day Notification Deadline

You must notify CRA within 10 days of the disposition. Miss it and the penalty is $25 per day, minimum $100, to a maximum of $2,500.

You can, and absolutely should, notify before closing instead. Section 116 permits a proposed disposition filing once you have a firm contract. Filing early is the entire game.

Which Form

A rental property that generated CCA often requires both T2062 and T2062A.

You will also need a Canadian tax number. If you do not have a SIN, apply for an Individual Tax Number using form T1261 well in advance, because CRA will not process the certificate without one and this step alone can add weeks.

Documents CRA Requires

• The purchase agreement from when you originally bought
• The current sale agreement
• Statements of adjustments from both transactions
• Proof of any capital improvements, with invoices
• Prior year rental statements if it was rented
• Proof of your tax identification number
• Payment of the estimated tax, or acceptable security

That capital improvements list matters more than people expect. A new roof, a kitchen renovation, a legal suite, all of it adds to your adjusted cost base and reduces the gain. Landscaping and repainting generally do not. Dig out the invoices before you apply, because reconstructing them later is unpleasant.

Realistic Processing Timelines

CRA’s service standard is 6 to 8 weeks from a complete application. Reality for real estate is often 8 to 16 weeks, and longer in spring when volume peaks or if anything in the file is incomplete.

Plan on three to four months. If it comes back faster, wonderful.

Applying Before Closing vs After: Why Timing Decides Everything

Start the application the moment you have an accepted offer. Not on closing day. Not the week after.

The Lawyer’s Holdback: What Happens on Closing Day

If the certificate has not arrived by closing, the transaction still completes. Your lawyer holds back the required amount in trust under a holdback agreement and the balance is released to you.

Once the certificate is issued, the lawyer remits the amount specified and releases the remainder. If no certificate is forthcoming, the withholding must be remitted to CRA by the end of the month following the month of closing.

Two things to insist on in the holdback agreement:

1. That the funds are held in an interest bearing trust account where possible, and that you know who receives the interest.
2. That the release mechanism is clearly defined, so there is no ambiguity about what happens when the certificate arrives.

Getting Your Money Back: The Non Resident Return

The withholding is not the tax. It is a deposit against the tax.

To recover the excess you file a Canadian income tax return for the year of the sale, due April 30 of the following year. The return reports the actual gain, calculates the actual tax, and claims the amount already withheld as a credit. CRA refunds the difference.

Two practical notes. First, you generally cannot claim the principal residence exemption for any year you were not resident in Canada, which is why a property that felt like a family home to you may still be fully taxable. Second, if the property was a rental, prior filing obligations get reviewed at the same time, which brings us to the next problem.

If You Rented the Property Out: The NR6 and NR4 Problem That Surfaces at Sale

Non residents earning Canadian rental income are subject to 25% withholding on gross rent, remitted monthly by the payer, usually the property manager or the tenant. An NR6 filed before the year begins lets you withhold on net rental income instead, and an NR4 slip reports it annually. Then you file a section 216 return to report the rental income properly.

A great many non resident owners never did any of this. They collected rent, reported nothing, and assumed it was fine.

It surfaces at sale, because the clearance certificate application puts your rental history in front of CRA. Unfiled section 216 returns, missed withholding, unremitted amounts and penalties all have to be cleaned up before the certificate is issued.

If this describes you, deal with it before you list. The Voluntary Disclosures Program can eliminate penalties and reduce interest if you come forward before CRA contacts you. Once your certificate application lands on a desk, that door closes.

Your Timeline: Day Minus 60 to Day Plus 30

Frequently Asked Questions

Can I claim the principal residence exemption as a non resident?

Only for years in which you were resident in Canada. Years of non residency do not qualify, so a long term non resident selling a former family home is generally fully taxable on the gain accruing during those years.

What if I am a Canadian citizen living abroad?

Citizenship does not matter. If you are a non resident for tax purposes, section 116 applies to you in full.

Does this apply if I sell at a loss?

Yes. The notification requirement and the certificate process still apply. The advantage is that with no gain, the certificate should be issued with little or no payment required, which is exactly why you file early rather than surrender 25% of the proceeds.

Can the buyer be held liable?

Yes, and this is the reason the system works as it does. If the buyer does not withhold and no certificate exists, CRA can assess the buyer for the tax. Buyers and their lawyers are extremely careful about this.

How long does a section 116 clearance certificate really take?

CRA targets 6 to 8 weeks from a complete application. Budget 3 to 4 months in practice, longer during spring peak season.

Can I get the 25% withholding back?

Yes, by filing a Canadian tax return for the year of sale. You will get the excess back as a refund, typically the spring following the sale.

What if the property is jointly owned?

Each non resident owner files their own application for their own share. A Canadian resident co owner does not need a certificate for their portion.

Do I need a clearance certificate to sell my condo if I am moving back to Canada?

If you are a non resident on the date of disposition, yes. Re establishing residency after the sale does not change the treatment of the sale itself.

What is an ITN and do I need one?

An Individual Tax Number is CRA’s identifier for people without a SIN. You need one to file the application, and obtaining it takes several weeks, so start it first.

Is the real estate commission deductible?

Yes. Commission, legal fees and other selling costs reduce the gain and therefore reduce the tax and the certificate payment. Include them in the application.

Selling From Abroad? Start Early

Section 116 is not complicated in principle. It is unforgiving about timing. Apply before closing and the withholding is calculated on your gain. Apply after and it is calculated on the entire sale price, and you wait until the following spring to see the difference.

If you are a non resident planning to sell Canadian property, or you have already closed and are trying to recover a withholding, or you have rental years that were never reported, we can help sort it out.

Maxpro Financials prepares T2062 and T2062A applications, section 216 rental returns, non resident personal returns and voluntary disclosures for clients across Canada and abroad.

This article is general information current as of 2026 and is not tax or legal advice for your specific situation. Non resident dispositions involve legal and tax questions that depend heavily on individual facts, so obtain professional advice before acting.