Buying Real Estate from a Non-Resident - Income tax Implications 

Any person buying Canadian real estate from a non-resident has an obligation to withhold and remit to Canada Revenue Agency (“CRA”) 25% of the gross sale proceeds with respect to the purchase. This liability increases to 50% where the real estate was depreciable property (a building used for rental or business purposes) or where the real estate was not held by the non-resident as capital property (for example, held for speculative purposes). A purchaser who fails to withhold this tax is liable for it (unless they had no reason to believe that the non-resident was not a Canadian resident) and CRA has the ability to enforce this liability.

Because of this substantial purchaser’s liability, it is standard practice for a purchaser’s lawyer to either require the vendor (seller) to certify in writing as to the vendor’s Canadian residency status or require withholding of this tax. By the way, this is another reason to have a lawyer specializing in real estate handle your deal!

Also note that a
knowledgeable real estate agent representing a non-resident seller will advise his/her client to speak with a lawyer so that appropriate actions can be taken sooner rather than later.

The withholding tax requirements can be reduced or eliminated if the vendor (seller) obtains a “Certificate of Compliance” from CRA. This requires the filing of a form with CRA in advance of the disposition or within 10 days thereafter, together with evidence as to what the sale proceeds are and what the vendor’s adjusted cost base of the property is. Penalties may apply in the event of late filing. None compliance or late-submission of the certificate request is subject to a penalty equal to the greater of $100 and $25 per day up to a maximum of $2,500 for each non-resident vendor, plus applicable interest.

One result of this filing is to allow the withholding tax to be calculated at 25% (or 50% as applicable) of the net profit (gross sale proceeds less the cost of the property).

CRA will review and approve the information and upon receipt of the appropriate withholding tax, issue a Certificate of Compliance. Note that where the vendor’s proceeds are less than or equal to cost, the withholding tax will be entirely eliminated.

A Certificate of Compliance is required anytime that a disposition by a non-resident occurs and thus must also be obtained if the property is gifted by a non-resident regardless of whether or not a gain is realized on the property. Where a gift occurs, the “proceeds” for these purposes are considered to be the value of the property at the time that the gift is made.

No Compliance Certificate is required where there is a “deemed” disposal on the death of a non-resident, but the executor acting on behalf of the decedent will still be required to file a tax return for the non-resident for the year of death to report the gain or loss on disposal.

CRA will typically recognize the effect of a principal residence designation in processing a Certificate of Compliance. Thus, a non-resident who was formerly a resident of Canada and who is selling a former principal residence may have the withholding tax liability reduced by virtue of a principal resident designation.

Furthermore, if a tax treaty between Canada and the vendor’s home country will apply to reduce the non-resident’s tax liability with respect to the disposal, CRA will generally allow the withholding tax to be reduced on proof being provided that the tax treaty exemption will apply to the disposal.

Where a certificate cannot be obtained from CRA prior to closing, the vendor’s lawyer will often agree to hold the required percentage of the gross proceeds in trust pending receipt of the certificate. Although the purchaser has a statutory requirement to remit the tax within 30 days after the end of the month following closing, this requirement is not generally enforced by CRA where the Certificate of Compliance request has been filed on a timely basis.

Also note that before the Certificate of Compliance is released, the non-resident will have to pay any outstanding income tax or any unpaid withholding tax on rental income. 


The process described in the previous section constitutes a withholding tax only. The actual Canadian income tax liability is determined by filing a Canadian tax return by April 30 of the following year. That return will usually only include the property disposition and often results in a refund of tax to the non-resident as the withholding tax rate typically is higher than the actual tax liability. Note that costs of disposal, including real estate commissions, legal fees, etc., reduce taxes payable on the return whereas they do no reduce the withholding tax payable for Certificate of Compliance purposes. In addition, a non-resident vendor may be entitled to claim certain non-refundable tax credits to further reduce tax payable. Late-filed returns are permitted within certain limits.


The federal government recently introduced two measures that would better ensure that the principal residence exemption is available only in appropriate cases, and in a manner consistent with the Canadian resident and one-property-per-family limits. I'm only outlining one of the measures as the other one pertains to trusts. Anyhow, under the measure I'm outlining: 

An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence.


It is a common misconception that the mere ownership of real property in Canada causes one to be viewed as a Canadian resident for tax purposes by the Canada Revenue Agency (CRA). Although the ownership of Canadian real property could be seen as a significant residential tie to Canada, there are steps that can be taken to mitigate this. If this applies to you, be sure to speak to knowledgeable accountant.