When a non-resident sells property in Ontario, both buyers and sellers must be aware of the tax implications under the Income Tax Act (Canada) to avoid unexpected liabilities. Failure to follow the required steps could result in significant tax consequences, including personal liability for the buyer.

Key Tax Considerations for Non-Resident Sellers

1. Capital Gains Tax

• • A non-resident seller is subject to capital gains tax on any profit from the sale.
  • 50% of the capital gain is taxable at the seller’s applicable non-resident tax rate.

2. Withholding Tax & Section 116 Certificate

• • Buyers must withhold 25% of the gross sale price (50% for rental properties) and remit it to the Canada Revenue Agency (CRA) unless the seller provides a Section 116 Clearance Certificate.
  • Without this certificate, the buyer may be personally liable for unpaid taxes.

3. Applying for a Section 116 Certificate

• • The seller should apply for the certificate before closing to reduce the withholding tax based on net capital gains rather than the full sale price.
  • The CRA typically processes this within 6-8 weeks.

4. Filing a Tax Return

• • After the sale, the non-resident seller must file a Canadian tax return to report the gain and potentially recover any excess withholding tax.

Buyer’s Responsibilities When Purchasing from a Non-Resident Seller

1. Withholding Tax Obligation

• • If the seller does not provide a Section 116 Certificate, the buyer must withhold the required tax amount and remit it to the CRA within 30 days of closing.
  • Failure to do so makes the buyer personally liable for the unpaid tax.

2. Due Diligence & Legal Protection

• • Buyers should confirm the seller’s residency status before closing.
  • Including a Statutory Declaration in the purchase agreement can help ensure compliance.

3. Delays & Additional Costs

• • Transactions involving non-resident sellers may experience longer closing times due to CRA processing requirements.
  • Buyers should be prepared for additional legal and accounting fees.

Why Legal Guidance is Essential

Given the complexities involved in transactions with non-resident sellers, it is highly advisable to have a real estate lawyer guide you through the process to ensure compliance with tax laws and avoid unexpected liabilities. 

If you are involved in a real estate transaction with a non-resident seller, consulting an experienced Ontario real estate lawyer can help you navigate the legal and tax requirements efficiently.

At Garcha Law Professional Corporation,  we provide comprehensive legal support for real estate transactions, ensuring our clients remain compliant with Canadian tax laws. Contact us today for a consultation and safeguard your real estate investment.