When you buy Canadian residential property from a non-resident seller, you — the purchaser — are legally required to withhold a portion of the purchase price and remit it to the Canada Revenue Agency under Income Tax Act s.116. You must remit that amount to the Receiver General within 30 days after the end of the month in which you acquired the property — or face personal liability for the non-resident’s tax.
What most buyers don’t realize: if the seller doesn’t provide a Section 116 clearance certificate before closing, you are personally on the hook for the withheld amount — even if you’ve already paid the full purchase price to the vendor.
Three things to know immediately:
- Who withholds: the purchaser, not the seller
- How much: a quarter of the purchase price (half in specified cases) unless a CRA certificate reduces it
- Deadline: remit to the Receiver General within 30 days after the end of the month of closing
Key takeaways
When a non-resident sells Canadian real property, the purchaser bears personal legal responsibility for withholding and remitting the required amount to CRA — making early due diligence and proper escrow terms non-negotiable.
| Point | Details |
|---|---|
| Purchaser withholds, not the seller | Under s.116, the buyer must withhold and remit — personal liability applies if they don’t. |
| Standard rate is 25% | Withholding is 25% of the purchase price (— for certain depreciable property) unless a certificate reduces it. |
| 30-day remittance deadline | Remit to the Receiver General within 30 days after the end of the month of acquisition. |
| Certificates reduce the holdback | A T2062/T2064 certificate sets a certificate limit; withholding applies only to the excess above that limit. |
| Karinrotem flags this at offer stage | Our team identifies non-resident vendor situations early and coordinates legal and tax counsel to protect buyers at closing. |
What is Canadian non-resident withholding tax under section 116?
The formal term is purchaser withholding under Income Tax Act s.116, and it applies whenever a non-resident of Canada disposes of taxable Canadian property — which includes residential real estate, condominiums, and most land in Canada. The rule exists because CRA cannot easily pursue a non-resident vendor after the sale closes and the proceeds leave the country. So the obligation falls on you, the buyer.
Covered transactions include arm’s-length residential sales, assignment sales where the vendor is a non-resident, and certain trust or corporate dispositions involving Canadian real estate.
Common exceptions include principal residences where the vendor qualifies for the principal residence exemption, which must be confirmed with documentation rather than assumed.
What I tell my clients: verify the vendor’s residency status and Section 116 compliance at the offer stage, not the week before closing. Discovering a non-resident vendor late in the process compresses your timeline and limits your negotiating leverage on escrow terms.
Pro Tip: Ask your lawyer to include a vendor residency declaration as a condition of the Agreement of Purchase and Sale. If the vendor is a non-resident, require evidence of a Section 116 application before conditions are removed.
How much must you withhold, and how is it calculated?
CRA’s T4058 guidance confirms the two statutory rates:
The certificate limit is the key concept. If CRA issues a clearance certificate, the withholding applies only to the amount by which the purchase price exceeds that limit — which can dramatically reduce the cash held back at closing.
Two worked examples:
- In a typical residential sale with no certificate, the purchaser withholds a quarter of the purchase price and remits that amount to the Receiver General.
- If a certificate limit exists, withholding applies only to the excess amount over the certificate limit, reducing the cash held back at closing.
Withholding is separate from land transfer tax, HST (where applicable), and other closing costs. You still pay those in full.
How does the section 116 clearance certificate process work?
IC72-17R6 sets out the full CRA procedure. The vendor applies using one of the following forms:
- T2062 — standard request for a Certificate of Compliance for most real property dispositions
- T2062A / T2062B / T2062C — variants for resource property, life insurance policies, and other specific dispositions
- T2064 — Certificate 1 for a proposed disposition (before closing)
- T2068 — Certificate 1 for a completed disposition where payment has already been provided
CRA issues a certificate when the vendor either pays a required portion of the estimated gain on account or furnishes acceptable security. The certificate is an interim measure — the vendor’s final tax liability is reconciled when their Canadian income tax return for the year of disposition is assessed.
Pro Tip: CRA processing can take many months. Vendors should file the T2062 or T2064 as early as possible — ideally before the Agreement of Purchase and Sale is signed — so the certificate is ready at or near closing.
Where a vendor has applied but the certificate hasn’t arrived yet, CRA may issue a comfort letter to the purchaser, confirming an application is in progress. That letter lets you hold the withheld funds without immediate remittance, offering a practical compromise during processing.
What must you do at and after closing?
Step-by-step purchaser obligations:
- Confirm certificate status before closing. If a certificate exists, note the certificate limit and calculate your withholding accordingly.
- Withhold the required amount at closing if no certificate is in hand.
- Prepare your remittance to the Receiver General — your lawyer typically handles this on your behalf.
- Remit within the deadline: 30 days after the end of the month of acquisition. A closing on March 15 means you must remit by April 30.
- Retain all documentation: copy of any certificate, CRA comfort letter, proof of remittance, and the vendor’s residency declaration.
- Notify your legal team of the remittance so they can coordinate with the vendor’s counsel.
Failure to remit makes you personally liable for the non-resident’s tax — including the withheld amount and possibly interest and penalties.
Pro Tip: Negotiate escrow language in the Agreement of Purchase and Sale that ties release of withheld funds to either delivery of a clearance certificate, a CRA comfort letter, or expiry of a defined holding period with a vendor-paid indemnity. This protects your cash flow without leaving you exposed.
What must the non-resident seller do after closing?
The vendor’s obligations don’t end with the certificate. Here is the standard sequence:
- Apply for the appropriate certificate (T2064 before closing, or T2062/T2068 after) and provide payment on account or acceptable security to CRA.
- Cooperate with the purchaser’s lawyer on escrow and holdback terms.
- File a Canadian income tax return for the year of disposition. The Canadian Bar Association notes that vendors commonly must file this return to reconcile actual tax owing, even after a certificate is issued.
- Receive credit for amounts withheld; if the actual tax is less than the withheld amount, the vendor receives a refund.
Pro Tip: Vendors should engage Canadian tax counsel well before listing the property. Arriving at the offer stage without a Section 116 application already filed puts pressure on closing timelines and can cost the vendor negotiating leverage.
What happens if you don’t remit — and how do you protect yourself?
The purchaser’s personal liability is the most misunderstood risk in these transactions. If you pay the full purchase price to a non-resident vendor and fail to withhold and remit, CRA can collect the tax directly from you. You then have a right to recover that amount from the vendor — but pursuing a non-resident for repayment is costly and uncertain.
Practical protections to negotiate:
- Vendor residency representation and warranty in the Agreement of Purchase and Sale
- Indemnity clause requiring the vendor to reimburse the purchaser for any tax, interest, or penalties arising from non-compliance
- Escrow or holdback tied to certificate delivery, with defined release conditions and interest provisions
- Requisition deadline that gives your lawyer time to demand Section 116 documentation before the transaction closes
CRA can also refuse to issue a clearance certificate if the vendor has not met Underused Housing Tax Act (UHTA) filing obligations — a non-obvious trap in vacation-property markets. If the vendor’s UHTA filings are outstanding, the certificate process stalls, and the purchaser is left holding withheld funds indefinitely.
Provincial variations: Quebec differs, Ontario follows federal rules
Ontario transactions follow federal s.116 rules, with legal teams typically managing timing through escrow and comfort letters. Quebec is materially different. Forvis Mazars notes that Quebec imposes additional provincial withholding of roughly 12.875% on top of federal requirements, rising to approximately 30% for certain depreciable properties. Quebec also requires its own provincial forms.
- Ontario: federal s.116 applies; escrow and comfort letters are standard practice
- Quebec: federal plus provincial withholding; separate provincial forms required; total holdback is substantially higher
- Other provinces: confirm local practice with counsel — provincial rules can materially affect closing-day cash flow
A practical closing checklist for buyers when the seller is a non-resident
Before removing conditions:
- Obtain a signed vendor residency declaration.
- Request a copy of any Section 116 application (T2062 or T2064) already filed.
- Confirm whether a CRA comfort letter or certificate is available.
- Review escrow and holdback language with your lawyer.
The week before closing:
- Confirm who remits (your lawyer or you directly) and the exact remittance amount.
- Verify wire or cheque logistics for the Receiver General payment.
- Confirm the comfort letter or certificate is in hand, or that escrow terms are agreed.
Timeline reminders: CRA processing for Section 116 certificates can take several months. Plan for the possibility that withheld funds remain in escrow well past closing, and structure your financing accordingly. A non-resident property purchase guide for Ontario can help you map the full timeline before you make an offer.
Who handles what — your agent, lawyer, and tax advisor
- Your buyer’s agent (Karinrotem): flags non-resident vendor status at the offer stage, advises on escrow language, coordinates with your legal team, and refers to tax counsel when needed. Local agents who understand international buyers make a real difference in managing these timelines.
- Your purchaser’s lawyer: demands residency declarations, reviews Section 116 documentation, prepares remittance, and negotiates holdback terms.
- Your tax advisor / accountant: advises on the calculation, reviews the certificate limit, and handles any post-closing filing if you are also a non-resident.
Escalate to specialized tax counsel when the vendor is a corporation, trust, or partnership; when UHTA issues are present; or when the holdback amount is large enough that the interest and timing risk materially affect your financing.
What I tell my Friday Harbour clients about non-resident withholdings
Friday Harbour attracts buyers from across Canada and internationally, and a meaningful share of resale transactions involve non-resident vendors — particularly in the condo and waterfront segments.
In one recent transaction, a buyer was prepared to close on a Friday Harbour condo when we discovered the vendor was a non-resident with no Section 116 application filed. We had roughly three weeks to closing. The buyer’s lawyer negotiated an escrow holdback tied to certificate delivery, with a defined release date and a vendor indemnity secured against Canadian assets. The deal closed on time — but only because we caught the issue early enough to negotiate from a position of strength.
My honest advice: if you’re buying in Friday Harbour or anywhere in Innisfil and the vendor is a non-resident, budget for the holdback from day one. Don’t assume the certificate will arrive before closing. And don’t remove your financing condition until your lawyer has confirmed the Section 116 documentation or the escrow terms are locked.
Buying near Friday Harbour? Our team knows this process
Karinrotem works with buyers and sellers across Friday Harbour, Innisfil, and the greater Toronto area, including transactions involving non-resident vendors. We flag Section 116 issues at the offer stage, coordinate with your lawyer and tax advisor, and help you structure escrow terms that protect your position without derailing the deal. We don’t give tax advice — that’s your accountant’s role — but we make sure the right professionals are in the room at the right time.
If you’re considering a purchase at Friday Harbour or exploring waterfront properties near Toronto, reach out to our team for a consultation. We’ll walk you through the transaction process, connect you with qualified legal and tax counsel, and make sure you’re never caught off guard at closing.
This article is general information only and does not constitute tax or legal advice. Confirm your specific obligations with a qualified Canadian tax advisor or solicitor.
Sources
- Section 116 clearance certificate | Practical Law
- Income Tax Act — section 116
- Canada
- Section 116 submission (CBA) – Canadian Bar Association
- Non-resident real estate tax – Forvis Mazars
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
FAQ
What is the 30-day remittance rule for purchasers?
Purchasers must remit the withheld amount to the Receiver General within 30 days after the end of the month in which they acquired the property. A March 15 closing means the deadline is April 30.
Can a buyer avoid withholding 25% of the full purchase price?
Yes — if the vendor obtains a Section 116 clearance certificate from CRA (using Form T2062 or T2064), withholding applies only to the amount above the certificate limit, which can be significantly less than the gross purchase price.
What happens if the vendor is non-compliant with the Underused Housing Tax Act?
CRA can refuse to issue a Section 116 certificate until the vendor’s UHTA filings are current. This can stall the certificate process for months, leaving the purchaser holding withheld funds in escrow with no clear release date.
Does Quebec have different withholding rules than Ontario?
Yes. Ontario follows federal s.116 rules only, with escrow and comfort letters managing timing.
Who is responsible for remitting the withheld amount to CRA?
The purchaser is legally responsible, though in practice the purchaser’s lawyer handles the remittance on closing day. Failure to remit makes the purchaser personally liable for the non-resident vendor’s tax.
