Non-Resident Selling Ontario Property: The CRA Section 116 Certificate

Canadian real property is "taxable Canadian property". If you are not a Canadian resident and you sell it, you generally owe Canadian tax on the gain. Section 116 of the Income Tax Act helps the CRA collect that tax. It requires you to notify the CRA, and it makes the buyer responsible if the CRA is not paid.

The CRA issues a certificate of compliance once it has received payment of the tax on the gain, or acceptable security. The certificate protects the buyer and allows you to receive the full price.

• Notify the CRA. For a proposed sale, send notice before closing. The CRA suggests at least 30 days before the sale. If you did not notify beforehand, or the sale differed from what you told the CRA, notice is required no later than 10 days after you dispose of the property.
• Use the right form. Form T2062 is used for taxable Canadian property generally. Form T2062A is used for real property that is not capital property (such as inventory) and for depreciable property. Depreciable property can require both.
• Pay or give security. For ordinary capital property, the CRA asks for 25% of the gain (the proceeds less the adjusted cost base). The CRA issues the certificate when it has the payment or security.
• Report the sale on your Canadian tax return and claim credit for the amount paid.

If there is no certificate, the buyer is generally required to withhold and send to the CRA 25% of the purchase price. The rate is 50% where the property is real property that is not capital property, or depreciable property. When a certificate is issued with a limit, the withholding applies only to the amount by which the price exceeds the limit.

The buyer must remit within 30 days after the end of the month in which the property was acquired. A buyer who does not remit can be liable for the amount, with no limit on when the CRA can assess. The buyer is not liable if, after reasonable inquiry, the buyer had no reason to believe the seller was a non-resident. Ontario real estate lawyers usually handle this at closing, so tell your lawyer early that you are a non-resident.

If you do not notify the CRA within 10 days of the sale, the penalty under subsection 162(7) is $25 for each day the notice is late, with a minimum of $100 and a maximum of $2,500. The CRA can cancel or waive the penalty if the delay came from circumstances beyond your control, but you must apply.

A non-resident can still claim the principal residence exemption if the home was ordinarily inhabited by you or your family. But the exemption is limited by the number of years you were a Canadian resident, so years you lived abroad can reduce or eliminate it. You still file the notification, and the amount you pay or secure may be reduced to reflect the exemption. See the principal residence exemption in Ontario.

A property held less than 365 days can be subject to the residential property flipping rule, and the gain may be fully taxable business income.

• The notice was filed late, or after closing, and the CRA issued a penalty.
• The buyer withheld a large amount and you need to recover the excess after you file your return.
• You became a non-resident during ownership, and you are unsure how the exemption applies.
• The CRA disagrees with your cost base or the classification of the property.
• You are also exposed to tax in the country where you live, and need to coordinate the two.

See our page on tax residency and cross-border tax issues. If the CRA reassesses you, see what to do if you receive a CRA reassessment.