Taxable Canadian Property: The Tax Rules for Non-Resident Sellers

A non-resident who sells a Canadian rental condo or a stake in a private Canadian company often assumes the tax follows them to wherever they now live. It does not. Some assets stay tied to Canada’s tax system no matter where the owner has moved, and selling one can trigger Canadian tax, mandatory withholding by the buyer, and a reporting process that many sellers only learn about at the closing table.

Knowing which assets fall into this category, and what the Canada Revenue Agency expects when they change hands, protects both the seller and the buyer from expensive surprises.

Canada taxes its residents on worldwide income. Non-residents are generally taxed only on income and gains connected to Canada. Taxable Canadian property is the category that keeps that connection alive. When a non-resident disposes of one of these assets, the resulting capital gain is taxable in Canada even though the person no longer lives here.

This matters most in two situations. The first is a non-resident who has always lived abroad and owns Canadian real estate or business interests. The second is a Canadian who becomes a non-resident by emigrating, since some holdings keep their Canadian tax status after the move. In both cases, the sale is a Canadian tax event first and a foreign one second.

The category is defined by the type of asset, not the residency of the owner. The most common examples are:

An option or an interest in any of these assets also counts. That breadth is why the rules reach far more than just houses. A non-resident selling shares in a family-owned Canadian company can be caught just as easily as one selling a cottage.

Section 116 of the Income Tax Act is the mechanism the Canada Revenue Agency uses to collect tax before a non-resident’s money leaves the country. It creates duties for the seller and, importantly, for the buyer.

The non-resident seller has to notify the Canada Revenue Agency either before the sale or within 10 days after it, using Form T2062. Once the seller pays the estimated tax on the gain or provides acceptable security, the Canada Revenue Agency issues a certificate of compliance and sends a copy to the buyer. That certificate is the buyer’s proof that the tax has been handled.

This is where deals go wrong. If the buyer does not receive a certificate of compliance by closing, the law requires them to withhold and remit 25 percent of the gross purchase price to the Canada Revenue Agency, within 30 days after the end of the month the sale closed. Not 25 percent of the profit. 25 percent of the entire sale price.

On a property that sells for 1 million dollars with a 200,000 dollar gain, the buyer must hold back 250,000 dollars, even though the actual tax on the gain is a fraction of that. A buyer who fails to withhold becomes personally liable for the amount, plus interest and penalties. That single rule is why real estate lawyers and accountants treat a non-resident sale very differently from an ordinary one.

The way to avoid a frozen quarter of the sale price is to get the certificate of compliance in hand before closing. The catch is timing. The Canada Revenue Agency aims to process a T2062 application within roughly six to eight weeks of receiving a complete one, so the application should go in at least 30 to 45 days before the closing date, and earlier is safer.

When the certificate does not arrive in time, the money is not lost. The buyer withholds and remits, then the seller files a Canadian tax return for the year of the sale to reconcile the actual tax owing against the amount held back. Any excess comes back as a refund. It simply ties up a large sum for months, which is exactly the outcome careful planning avoids.

The withholding is a deposit, not the final tax. The real bill is settled on the Canadian return. For 2026, the capital gains inclusion rate is 50 percent, meaning half of the gain is added to taxable income and taxed at the applicable rates. The proposed increase to two thirds was cancelled, so there is no higher tier and no 250,000 dollar threshold to track.

Two reliefs are worth knowing. If the property was genuinely the seller’s principal residence for some years, the principal residence exemption can reduce or eliminate part of the gain, though the rules tighten once a person becomes a non-resident. And Canada’s tax treaties with other countries sometimes reduce or exempt the Canadian tax on certain gains. Both are fact-specific, and both are worth confirming before a sale rather than after. The treatment of the gain follows the same core mechanics covered in our guide to capital gains on inherited property, applied here to the non-resident situation.

A newer wrinkle catches non-resident, non-Canadian owners of residential property. The Canada Revenue Agency can refuse to issue a Section 116 certificate of compliance if the owner has not met their filing and payment obligations under the Underused Housing Tax. Even owners who qualify for an exemption from paying the tax usually still have to file the annual return. An unfiled Underused Housing Tax return can stall an otherwise clean sale, so it belongs on the pre-sale checklist right alongside the T2062.

Selling taxable Canadian property is one of the few transactions where the buyer, the seller, and two separate tax regimes all have to line up on a single deadline. A missed form or a late application can freeze a quarter of the sale price for months. Whether you are a non-resident disposing of Canadian real estate, an emigrant selling shares in a Canadian business, or a buyer who needs protection from the withholding liability, Your Modern Accountant can manage the T2062, the clearance certificate, and the final tax preparation so the deal closes cleanly. We also handle the corporate filing side when private company shares are involved, and the ongoing rental property tax filing for Canadian real estate held from abroad.