Tax Implications for Non-Residents Selling Real Estate in Canada 

If you’re a non-resident of Canada and have sold real estate within the country, it’s crucial to understand the tax implications to avoid any unexpected issues. 

Key Points: 

• Taxation for Non-Residents: Non-residents are required to pay a federal tax of 25% of the gross selling price to the Canada Revenue Agency (CRA) when they sell Canadian real estate. For instance, if a non-resident sells a property for $200,000, they would owe the CRA $50,000. This might seem discouraging for potential investors. 

• Reducing the Tax Rate: The 25% tax on the gross selling price can be reduced to 25% on the capital gain (i.e., profit) from the sale. Using the previous example, if the property was initially purchased for $100,000 and later sold for $200,000, the tax would be $25,000. 

• Clearance Certificate: To benefit from the reduced tax rate, sellers must apply for a Clearance Certificate, formally known as “Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property – Form T2062.” It typically takes the CRA between 4 to 8 weeks to issue this certificate. The certificate is only provided if the non-resident seller pays the tax with the application. Since the Canadian buyer usually withholds the tax, the seller might not have enough funds for this. To address this, the seller can request the CRA to directly obtain the withheld funds from the buyer. 

• Liability for the Buyer: The Canadian buyer is responsible for the 25% tax on the gross selling price when purchasing real estate from a non-resident. They will generally withhold this amount until the CRA issues the Clearance Certificate. Once received, the buyer sends the withheld funds to the CRA, and any surplus is returned to the non-resident seller. 

• Year-End Tax Return: By the year’s end, the non-resident seller must file a Canadian income tax return detailing the profit from the sale of their Canadian property. Any taxes already paid to the CRA will be credited on this return. Often, non-residents receive a tax refund due to personal tax credits on their filed Canadian income tax return.