Buying real estate from non-residents

Non-resident investors have played a part in boosting Canada’s booming condo and real estate market. And when they sell, the CRA will have its eye on a piece of the profit. The tax rules are complex, and if those investors do not follow them properly, it can result in significant liability — for you, the Canadian buyer.

Section 116 of the Income Tax Act requires payment of withholding tax when a non-resident disposes of taxable property. And it’s important that he or she obtain a clearance certificate from the CRA. It certifies that the seller has paid all taxes owing on the property.

If the seller doesn’t get a clearance certificate, the responsibility shifts to you, the purchaser, to remit either 50% of the purchase price for depreciable property, or 25% of the purchase price for other capital property.

Getting a clearance certificate

A non-resident can request a certificate of compliance from the CRA for a proposed or completed sale within 10 days of the disposition date. The request can be quite onerous to complete, and it should include the following required documents:

• completed prescribed forms T2062 and/or T2062A
• purchase and sale agreements
• copies of income tax returns and Notices of Assessment from prior years
• registered deeds on purchase
• registered deeds on sale

The appropriate withholdings will be held in escrow by your lawyer. After the CRA has reviewed and approved the request, it will contact the non-resident’s representative, and the lawyers will make arrangements to send payment to the CRA.

Once payment is received, the CRA will issue the clearance certificate to the non-resident’s representative. The remaining funds that are held in escrow will be released, and the sale can finally be considered complete.