What Is a Non-Resident for Canadian Tax Purposes?
Tax residency in Canada is determined by the Income Tax Act — not by citizenship, immigration status, or physical address. A person is a non-resident of Canada for tax purposes if Canada is not their primary country of residence. Common non-resident seller scenarios in BC:
| Seller Profile | Likely Tax Residency | Section 116 Applies? |
|---|---|---|
| Canadian citizen living and working in Canada | Canadian resident | No (normal capital gains rules apply) |
| Canadian citizen living in the US for 5+ years | Non-resident (factual) | Yes — must withhold |
| Foreign national with a BC investment property | Non-resident | Yes — must withhold |
| Seller moved to Hong Kong 3 years ago, still has BC address | Non-resident (factual) | Yes — address is irrelevant |
| Canadian PR holder living abroad for 18 months | Potentially non-resident — depends on ties | Advise to consult tax counsel; withhold until confirmed |
| BC-incorporated PREC (personal real estate corporation) | Corporation is resident, but check controlling shareholder | Corporate residency is separate from shareholder residency |
| Deceased non-resident whose estate is selling | Estate is non-resident if executor is a non-resident | Yes — withholding applies to estate sales too |
Tax residency is a legal determination. Realtors should never advise a seller on their residency status — that is the role of a Canadian tax lawyer or accountant. Your role is to ask the right question and ensure both parties understand the implications.
Section 116 Withholding: How It Works
Section 116 of the Income Tax Act creates a mandatory withholding obligation on the purchaser when a non-resident sells taxable Canadian property (TCP). Real estate located in Canada is TCP. The mechanics:
- Who withholds: The buyer (or buyer's conveyancing lawyer on their behalf)
- What is withheld: A percentage of the gross selling price
- When it is remitted: Within 30 days of the end of the month in which closing occurs
- To whom: CRA — the buyer submits Form T2068 (remittance) with the withheld funds
| Property Type | Default Withholding Rate | Reduced Rate (with Clearance Certificate) |
|---|---|---|
| Residential real estate (capital property) | 25% of gross proceeds | 25% of estimated net capital gain |
| Rental/income property (depreciable property) | 25% of gross proceeds | 25% of estimated recapture + gain (T2062A) |
| Property used in Canadian business | 25% of gross proceeds | Certificate required — different process |
| Property of a non-resident estate/trust | 25% of gross proceeds | Same — T2062 or T2062A applies |
The critical risk: On a $1.5M sale with a $500K adjusted cost base, 25% of gross proceeds = $375,000 withheld. With a T2062 clearance certificate, the withholding is reduced to 25% of the estimated $1M gain = $250,000. The difference — $125,000 — remains in the seller's hands until CRA finalizes the tax return, at which point any excess is refunded. Without a certificate, the seller waits for a tax refund of the over-withheld amount.
The T2062 Clearance Certificate: What It Is and Why It Matters
The T2062 Application for a Certificate of Compliance is submitted to CRA by the non-resident seller (through their Canadian tax representative, usually a tax lawyer or accountant) to request a reduction in the default withholding. It is not a waiver of tax — it is confirmation that CRA has reviewed the estimated gain and the seller has either paid the estimated tax or posted acceptable security.
T2062 vs. T2062A: Which Form?
| Form | Used For | Key Difference |
|---|---|---|
| T2062 | Capital property (principal residence, investment, bare land) | Reports capital gain; uses Schedule 3 of T1 |
| T2062A | Depreciable property (rental buildings, commercial property) | Reports both recapture of CCA and terminal loss / capital gain |
| T2062 + T2062A | Mixed property (e.g., principal residence with suite) | Both forms required to address different portions of the gain |
T2062 Processing Timeline
| Stage | Typical Timeline | Notes |
|---|---|---|
| Application submitted to CRA | Before or immediately after closing | Must include adjusted cost base documentation and sale details |
| CRA acknowledgement | 1–2 weeks | CRA issues reference number; seller retains proceeds in trust |
| CRA review and certificate issuance | 30–90 days (target 30) | Complex cases (large gains, multiple properties) take longer |
| Buyer's 30-day remittance deadline | Month-end following closing + 30 days | Buyer must remit even if certificate not yet issued; penalties apply |
| Seller's final tax return | April 30 following calendar year of sale (or June 15 for self-employed) | Non-resident files T1 or T1-NR; excess withheld is refunded |
Buyer Liability: The Most Important Risk to Explain
The provision that surprises most buyers and their agents: if the buyer fails to withhold and the non-resident seller does not pay Canadian taxes, the CRA can recover the unpaid tax — including interest and penalties — from the buyer. This is not a theoretical risk; it has been successfully enforced by CRA against buyers who closed without withholding, even when the buyer had no knowledge the seller was a non-resident.
Buyer liability under Section 116 exists even if:
- The seller provided a statutory declaration stating they are a Canadian resident (and it was false)
- The buyer's lawyer failed to conduct residency verification
- The sale was handled by a PREC corporation whose shareholder was a non-resident
- The seller had a Canadian address, Canadian bank account, and SIN
The buyer's only complete protection is a T2062 clearance certificate in hand before releasing proceeds to the seller.
Due Diligence Protocol for Buyer's Realtors
When representing a buyer, establish these steps as standard practice on every transaction:
| Step | Who Responsible | Timing |
|---|---|---|
| Ask seller's agent about residency status at offer stage | Buyer's realtor | Before or at offer presentation |
| Include residency representation in the Contract of Purchase and Sale | Buyer's realtor / lawyer | At drafting |
| Advise buyer to instruct their conveyancing lawyer to verify seller residency | Buyer's realtor | After acceptance, before subject removal |
| Conveyancing lawyer requests statutory declaration from seller | Buyer's lawyer | Pre-closing |
| If non-resident confirmed: retain 25% or certified T2062 amount in trust | Buyer's lawyer (holds in trust) | At closing |
| Remit withheld funds to CRA | Buyer's lawyer | Within 30 days of month-end after closing |
| Obtain T2068 receipt from CRA as proof of remittance | Buyer's lawyer | After remittance |
Contract Language for Non-Resident Sales
The Contract of Purchase and Sale should address residency status directly. The standard BCREA contract does not have a built-in non-resident disclosure clause, so realtors should include an addendum. Typical language:
"The Seller represents and warrants that the Seller is/is not [circle one] a non-resident of Canada within the meaning of the Income Tax Act (Canada). If the Seller is a non-resident of Canada, the parties acknowledge that Section 116 of the Income Tax Act may apply and the Buyer may be required to withhold and remit a portion of the proceeds to the Canada Revenue Agency. The Buyer's obligation to withhold is not waived by this contract. The Seller shall cooperate with the Buyer's conveyancing lawyer and provide all documentation required for compliance with Section 116, including cooperation in the T2062 application process."
Note: even if the seller checks "is not a non-resident," the buyer's lawyer should still verify with a statutory declaration. The representation reduces the buyer's risk but does not eliminate it if the representation turns out to be false.
Principal Residence Exemption for Non-Residents
Non-residents can claim the principal residence exemption for tax years in which the property was their principal residence and they (or a qualifying family member) were Canadian residents. Key rules:
| Scenario | PRE Eligibility | Practical Outcome |
|---|---|---|
| Seller lived in property as Canadian resident, then moved abroad 3 years ago | Eligible for years resident in Canada; not eligible for non-resident years | Partial PRE — capital gain taxable for years of non-residency only |
| Seller bought as investment property, never lived in it | No PRE — was never principal residence | Full capital gain taxable; T2062 withholding on entire gain |
| Non-resident's spouse is Canadian resident and lives in the property | Potentially eligible via qualifying family member | Tax counsel required — complex; depends on filing status |
| Seller was a temporary resident (work permit) who is now abroad | Eligible for years as Canadian tax resident | Pro-rated PRE; proportional gain taxable |
| Foreign national who purchased Canadian property as investment | No PRE — never a Canadian resident | 100% of capital gain taxable; full T2062 withholding process |
Interaction with Other BC Taxes for Non-Residents
Section 116 federal withholding is not the only tax consideration for non-resident sellers in BC. Realtors should be aware of the full tax picture:
| Tax | Applicable to Non-Resident Sellers? | Rate / Notes |
|---|---|---|
| Federal Capital Gains Tax (Income Tax Act) | Yes — on gain from TCP | 50% inclusion rate; top marginal rate approximately 26–27% on gain for individuals |
| BC Speculation and Vacancy Tax (SVT) | Yes — if owned during prior tax year and not exempt | 2% for foreign owners and satellite families (not automatically triggered on sale) |
| BC Property Transfer Tax (PTT) — buyer's obligation | No — PTT is paid by the buyer; non-resident sellers do not pay PTT | N/A for sellers — note buyer pays 20% Additional PTT if foreign |
| Municipal Empty Homes Tax (EHT) — Vancouver, UBC, etc. | Possibly — if property was empty in prior calendar year | 3% in Vancouver (2026); declared empty unless exempt |
| GST/HST on sale | Only if property is new construction or substantially renovated, or seller is a builder | 5% GST; most residential resales are GST-exempt |
Common Non-Resident Transaction Pitfalls
| Mistake | Consequence | Prevention |
|---|---|---|
| Failing to ask residency status at listing stage | No time to obtain T2062; forced 25% gross withholding delays closing | Make residency status question part of every listing intake process |
| Buyer's realtor assumes Canadian address = Canadian resident | Buyer closes without withholding; exposed to CRA liability | Advise buyer's lawyer to verify regardless of apparent residency |
| T2062 not filed before closing | 25% of gross withheld instead of 25% of net gain; seller short on funds to close | Begin T2062 process as soon as listing agreement is signed or offer accepted |
| Seller's adjusted cost base (ACB) undocumented | T2062 cannot estimate gain accurately; withholding overstated | Advise non-resident sellers to locate purchase records, improvement receipts, and carrying cost records |
| Lawyer remits withheld funds directly to seller, bypassing CRA | Criminal exposure for lawyer; buyer remains liable to CRA | Standard conveyancing practice — realtors should confirm buyer's lawyer is handling Section 116 compliance |
| Withholding not remitted within 30 days of month-end | Late remittance penalty — 10% of amount not remitted, plus interest | Ensure buyer's lawyer has a Section 116 compliance protocol and remits on time |
How to Identify Potential Non-Resident Sellers
Realtors should be alert to signals that a seller may be a non-resident of Canada for tax purposes:
- Foreign mailing address on listing agreement or correspondence
- Communication through a Canadian family member or property manager acting as intermediary
- No Canadian SIN or ITIN (though SIN alone does not confirm residency)
- Property described as investment property or consistently rented since acquisition
- Seller has multiple Canadian properties — suggests investor rather than resident
- Purchase funded from foreign bank accounts (visible in historical title searches)
- Prior years of SVT filings paying the 2% foreign owner rate (accessible to the seller only)
- Out-of-country phone number or email domain
None of these signals are definitive. The residency question must be asked directly and the answer confirmed through proper legal channels — a statutory declaration at minimum, and ideally a T2062 clearance certificate.
Advising the Listing Agent When Seller Is Non-Resident
If you are the listing agent for a non-resident seller, your advisory obligations include:
- Identify the issue early: Ask residency status at the time of taking the listing, not at offer acceptance
- Refer to a Canadian tax professional: The seller needs a Canadian tax lawyer or accountant before listing, not after an offer comes in
- Initiate T2062 process before or at listing: The T2062 application requires documentation of the adjusted cost base — begin document gathering immediately
- Set accurate closing timeline expectations: If no T2062 certificate is in hand at closing, 25% of gross proceeds are withheld. This affects the seller's net proceeds and can cause financing problems if they needed the full amount
- Disclose to buyer's agent: Non-resident status is material information that buyer's counsel needs to prepare for compliance; failure to disclose could expose you to a misrepresentation claim
- Document your advice: Keep written records that you advised the seller to seek tax counsel — this protects you from claims that you caused a tax problem
Scripts for Non-Resident Seller Conversations
Script 1: Asking Residency Status at Listing
"Before I complete the listing paperwork, I need to ask you one important tax question: for Canadian income tax purposes, are you a resident of Canada? This is different from where you live or your citizenship — it's specifically about whether Canada is your primary country of tax residence. The reason I'm asking is that if you're a non-resident, the buyer is legally required to withhold 25% of the selling price and send it to the CRA. That creates timing issues on your proceeds and requires us to start a clearance certificate application right away. I need to refer you to a Canadian tax accountant before we go to market."
Script 2: Explaining the T2062 Timeline to a Non-Resident Seller
"The clearance certificate process takes roughly 60–90 days from application to approval. If we list this month and go firm on an offer in four weeks, we likely won't have the certificate in time for a standard 3–4 week completion. That means at closing, the buyer's lawyer will hold back 25% of the $1.4 million selling price — $350,000 — and remit it to CRA. You'll get that money back when you file your tax return, which won't be until next spring. If you need those funds for a concurrent purchase, we have a problem. Let's call your accountant today and start the application immediately."
Script 3: Advising a Buyer on Non-Resident Seller Risk
"The listing agent confirmed the seller is a non-resident. That's important for you to understand before we go firm. Under Canadian tax law, if the seller doesn't pay their Canadian capital gains tax, the CRA can come after you — the buyer — for up to 25% of the purchase price. That's potentially $300,000 on a $1.2M purchase. Your conveyancing lawyer will handle this by holding back 25% of the proceeds or the amount on the clearance certificate. You won't pay more — but those funds don't get released to the seller until CRA is satisfied. Make sure you brief your lawyer on this before completion."
Script 4: When Seller Claims Residency But Circumstances Are Unclear
"You've told me you're a Canadian resident, and I'll note that on the contract. However, because you mentioned you've been primarily in Singapore for the past two years, I want to make sure we're protected on both sides. I'm going to recommend that your lawyer prepare a statutory declaration confirming your residency status, and the buyer's lawyer will likely ask for one anyway. If there's any question in your mind about your residency classification, please consult a Canadian tax lawyer before we firm up — this is not a risk either of us wants to discover after closing."
Frequently Asked Questions
What is Section 116 withholding and when does it apply to BC real estate?
Section 116 of the Income Tax Act requires that when a non-resident of Canada sells taxable Canadian property (TCP) — including most real estate — the buyer must withhold a portion of the proceeds and remit it to the CRA. This applies regardless of whether the seller has a Canadian bank account, is physically present in Canada, or has a Canadian property address. The standard withholding rate is 25% of the gross proceeds (not the gain), reducible to 25% of the estimated net gain if a clearance certificate is obtained before closing.
What happens to the buyer if Section 116 withholding is not done?
If the buyer fails to withhold and remit to CRA and the seller does not pay their Canadian taxes, the buyer becomes personally liable for the withholding amount — up to 25% of the gross purchase price. This liability is not limited to their down payment or any equity position. The CRA can pursue the buyer directly even if they had no knowledge of the seller's non-resident status. This is why buyers must confirm residency status before closing every transaction.
Can a non-resident seller claim the principal residence exemption in Canada?
Yes, but only for tax years in which the property was the seller's principal residence AND the seller (or a family member) was a resident of Canada during that year. Non-residents cannot designate years during which they were non-resident as principal residence years. However, for years when they lived in Canada as a resident, those years are eligible. The partial exemption is calculated on a pro-rated basis. Sellers should engage a Canadian tax accountant before closing to model the capital gains exposure.
What is a T2062 clearance certificate and how long does it take?
A T2062 (or T2062A for rental properties) is an application submitted to CRA by the non-resident seller (or their Canadian tax representative) to obtain a certificate of compliance. The certificate confirms that the seller has either paid their estimated capital gains tax or provided security. When a certificate is in place, the buyer's withholding is reduced from 25% of gross proceeds to 25% of the estimated net gain. CRA targets 30 days for processing but 60–90 days is common. Applications must be filed before or immediately after the sale completes.
What should BC realtors do when they suspect a seller may be a non-resident?
Realtors should ask directly at the time of listing: "Are you a resident of Canada for income tax purposes?" This is a tax residency question, not a citizenship or physical address question. A seller can have a BC address, Canadian bank account, and PREC corporation yet still be a non-resident for income tax purposes. When in doubt, advise the seller to consult a Canadian tax lawyer or accountant immediately. On the buyer side, include a representation in the contract that the seller is or is not a non-resident, and advise buyers to confirm this with their conveyancing lawyer before releasing holdback funds.