When a non-resident sells their Canadian property, the buyer is generally required to withhold 25% of the total sale price and remit it to the CRA. The withholding tax increases to 50% where the real estate is a building used for rental or business purposes. This withholding tax is meant to represent a prepayment of tax, and not the actual tax owing on the sale. To determine the actual tax, the non-resident is still required to file a Canadian personal tax return reporting just the sale.
In order to reduce or eliminate the withholding tax on the sale the non-resident can apply to the Canadian government for a Clearance Certificate in advance of the sale. This certificate will tell the purchaser what the CRA considers to be an appropriate amount of tax to
withhold.
The amount to be withheld is 25% or 50% of the gross proceeds on the sale less the tax cost of the property. The Clearance Certificate should
be requested as early in the process as possible. The CRA can take up to eight weeks to issue the certificate. You will also require an Individual Tax Number ITN – prior to requesting the Clearance Certificate. That will also add a significant amount of time to the
process.
Where a Clearance Certificate is not requested prior to the sale the non-resident vendor must report the sale to CRA within ten days after the sale. In addition, the purchaser must also report the sale to CRA within 30 days after the sale and remit the withholding tax. The non-resident must then file a Canadian personal tax return in order to get a refund on the gross withholding tax on the sale. As a Canadian representative of a non-resident seller, you may be found personally liable for any unpaid withholding taxes.