Non-Residents Selling Canadian Real Estate (Section 116 Rules)

Introduction
Understanding non-residents selling Canadian real estate is crucial for foreign investors, emigrated Canadians, international owners, and even temporary residents. When a non-resident sells taxable Canadian property, strict rules under Section 116 of the Income Tax Act apply. Buyers are legally required to withhold tax, sellers must apply for a clearance certificate, and CRA imposes large penalties if filings are late. This is one of the most misunderstood and dangerous areas in Canadian real estate taxation—especially when large financial transactions occur without proper compliance. This guide explains everything non-residents need to know about selling Canadian property under Section 116, and how to avoid withholding, penalties and costly delays.

Legal and Regulatory Framework
Non-residents selling Canadian real estate are governed by:

• Section 116 of the Income Tax Act
• CRA Form T2062, T2062A, and T2062B
• CRA Non-Resident Tax Withholding
• Federal GST/HST rules on new housing
• Québec Taxation Act (if property in Quebec)
• foreign exchange reporting rules
• capital gains rules for taxable Canadian property

CRA enforces these rules aggressively because non-residents can leave Canada without paying tax otherwise.

1. Who Is a Non-Resident?

You are considered a non-resident for tax purposes if:

• you live outside Canada
• you do not have significant residential ties (home, spouse, dependents)
• you file as a non-resident for tax purposes
• CRA has classified you as NR after departure
• you are a foreign corporation, trust, or partnership
• you are a foreign buyer registered outside Canada

Even Canadians who leave the country must follow these rules.

2. When Section 116 Applies

Section 116 applies to any non-resident selling taxable Canadian property, including:

• residential homes
• condos
• rental properties
• commercial buildings
• cottages
• vacant land
• pre-construction assignments
• fractional property ownership
• certain shares in real estate corporations

If a non-resident sells these assets, a Section 116 process is mandatory.

3. Buyer’s Withholding Requirement (Very Dangerous If Ignored)

If the seller is a non-resident:

The buyer MUST withhold tax:

• 25% of the sale price for most properties
• 50% of the sale price for depreciable property (e.g., rental buildings with CCA)

Not the profit—the gross sale price.

If the buyer fails to withhold:

CRA will assess the BUYER for the tax.

This is one of the harshest tax rules in Canada.

4. Clearance Certificate (The Heart of Section 116)

To reduce or eliminate withholding, the non-resident must apply for a Clearance Certificate using:

• T2062 for real estate
• T2062A for depreciable property
• T2062B for partnership interests

The application must include:

• purchase agreement
• sale agreement
• proof of cost base
• renovations supporting cost base
• legal fees
• capital cost allowance (CCA) calculation, if applicable
• mortgage statements
• non-resident identification

If approved, CRA issues a Clearance Certificate, allowing withholding to drop to:

25% of estimated gain, not gross sale price

or

$0 if no tax is owed

This dramatically reduces cash held back at closing.

5. Deadlines for Section 116 (Critical)

The T2062 package must be filed:

Within 10 days after the property sale date

(not the closing date— the date of actual transfer)

Failure to file triggers:

• penalties starting at $100 per day
• up to $2,500 per property
• interest on late filings

CRA takes these deadlines extremely seriously.

6. Final Tax Return for Non-Residents

After the sale, non-residents selling Canadian real estate must file:

• Section 116 return (non-resident return)
• Form T1 (Section 116) for individuals
• Form T2 for corporations
• Schedule 3 (capital gains)

This final return reconciles:

• actual gain
• foreign exchange adjustments
• recapture of CCA
• withheld amounts
• rebates/refunds owed

Non-residents often receive refunds if too much withholding occurred.

7. GST/HST and QST Rules for Non-Residents

Non-residents selling Canadian real estate may also face GST/HST if the property is:

• newly built
• substantially renovated
• used for Airbnb (commercial activity)
• used as a short-term rental
• assigned pre-construction contracts

In Québec, QST may apply separately.

These rules are extremely complex.

8. Special Rules for Quebec Non-Residents

If the property is located in Québec:

• Revenu Québec must also review the sale
• QST rebates and obligations differ
• Québec residency rules may apply
• transfer duties (welcome tax) follow Québec rules

Québec requires additional documents for Section 116-like compliance.

9. Audit Triggers for Non-Resident Sales

CRA flags transactions when:

• the buyer does not withhold
• no clearance certificate is filed
• seller used a corporation or trust
• large capital gains appear
• the property was rented or Airbnb
• the seller claimed CCA
• the seller has already left Canada
• inconsistent residency declarations
• flipping or assignment history exists

Real estate sold by non-residents is one of CRA’s highest audit targets.

Mackisen Strategy

Mackisen CPA provides full end-to-end support for non-residents selling Canadian real estate:

• determining residency status
• preparing T2062, T2062A and T2062B packages
• calculating cost base and capital gains
• reconstructing missing renovation documentation
• negotiating withholding amounts with CRA
• obtaining clearance certificates quickly
• filing non-resident tax returns
• defending against CRA reassessments
• handling GST/HST/QST implications
• coordinating with lawyers and notaries
• ensuring compliance for buyers and sellers

We ensure smooth real estate transactions without massive tax withholding surprises.

Real Client Experience

Examples of real Section 116 cases handled by Mackisen:

• A U.S. seller failed to file T2062. Buyer was assessed 25% of $900,000 sale. Mackisen intervened and removed buyer liability.
• A non-resident landlord claimed CCA for years. CRA attempted recapture at 50% withholding. We recalculated and reduced tax dramatically.
• A foreign investor sold pre-construction before occupancy. GST/HST rules applied. Mackisen prepared a full compliance package and eliminated penalties.
• A Canadian living abroad sold their principal residence. CRA challenged residency. We proved factual residency and removed Section 116 obligations.
• A Québec property sale by a European investor triggered both CRA and ARQ queries. Mackisen handled dual compliance and secured refunds.

Common Questions

• Do non-residents always pay 25% tax?
No—only if clearance certificate is not filed.

• Does the buyer really have to withhold tax?
Yes—by law. Buyer becomes liable if they do not withhold.

• How long does a T2062 clearance certificate take?
4–16 weeks depending on CRA backlog.

• What happens if I already left Canada?
Section 116 still applies.

• Is Airbnb considered rental or business?
Often business—GST/HST may apply.

• Does Québec have additional requirements?
Yes—ARQ reviews QST and tax residency separately.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps non-residents, investors, corporations and buyers comply fully with Section 116 rules. Whether you are preparing a clearance certificate, disputing withholding, proving residency, or filing non-resident returns, our expert team ensures full compliance, minimized tax and complete protection.