Non-resident seller withholding (section 116)비거주자 매도인 원천징수

What is it?

When a non-resident of Canada (for tax purposes) sells Canadian real estate, they owe Canadian income tax on the gain. But if the seller is abroad, the Canada Revenue Agency (CRA) cannot easily collect. So section 116 of the Income Tax Act puts the responsibility on the buyer: the buyer must hold back part of the price and send it to the CRA, and if they do not, the buyer is liable for that tax.

"Non-resident" here is a tax idea, not about citizenship or permanent residence. A Canadian citizen who has moved back to Korea can be a non-resident for tax, while a foreign national living in Canada on a work permit can be a resident. Residency is complicated, so ask an accountant.

If the seller reports the sale to the CRA in advance and pays the tax (or gives security), the CRA issues a certificate (often called a "clearance certificate"). With that certificate the buyer does not need to hold anything back.

Why is the buyer responsible?

Section 116(5) says that a buyer who acquires property from a non-resident must pay the CRA 25% of the cost (the price) on the seller’s behalf, unless (a) after reasonable inquiry the buyer had no reason to believe the seller was a non-resident, or (b) the CRA has issued a certificate. The Act has other exceptions too, such as property protected by a tax treaty between Canada and another country, so ask your lawyer whether any applies. If the certificate shows an amount (the "certificate limit"), the buyer pays 25% only on the part of the price above that limit.

The deadline is 30 days after the end of the month in which you bought the property. If you close on March 15, the deadline is April 30. The buyer has the right to withhold this amount from what is paid to the seller, so in practice the buyer’s lawyer keeps 25% of the price in trust on closing.

The 25% is of the whole price, not the gain. Even if the seller is selling at a loss, without a certificate 25% of the price is held back. The seller’s real tax is settled later, but the buyer’s duty is measured by the price.

25% or 50%?

Which category applies depends on how the seller used the property, and the lawyers and accountants decide. A home that was rented out may fall into the 50% group, so take extra care.

Budget 2026 proposal: 15% and 30% for corporate sellers only (not law yet)

The federal budget tabled on November 5, 2026 proposes cutting the withholding rates from 25% to 15% and from 50% to 30%. But in the budget this sits under “Corporate Vendors”, and the draft Income Tax Act amendments released with it apply the 15% and 30% rates only when the non-resident seller is a corporation.

Individual non-residents see no change. For example, an individual living in Korea who sells a GTA home still faces 25% (50% for s. 116 (5.2) property), as today.

The corporate proposal is not law yet either. If enacted, the budget says it would apply to dispositions on or after January 1, 2027. As of November 6, 2026, corporations are still at 25% and 50%. If you are buying from a corporation, ask your lawyer about the closing date and the law on that date.

What the non-resident seller must do

1. Notify the CRA before the sale or within 10 days after it. The Act requires a notice by registered mail no later than 10 days after the sale (s. 116(3)); sending it in advance is a "proposed disposition" notice (s. 116(1)). In practice a CRA form (the T2062 family) is used, but confirm the exact form and filing method with the CRA or an accountant.
2. Pay the CRA 25% of the estimated gain (sale price minus cost) or give security the CRA accepts (s. 116(2)). For 50% property such as a rental building (s. 116(5.2)), the notice and the amount to pay are different, so check with an accountant.
3. The CRA issues a certificate to both the seller and the buyer. It states a "certificate limit" (the sale price).
4. File a Canadian tax return for the year to settle the actual tax. If the amount paid in advance is more than the real tax, the difference is refunded. Do this step with an accountant.

If the certificate does not arrive before closing

It is common for the CRA certificate not to be ready by closing. The law sets no processing time; it depends on the CRA’s workload.

In that case the usual practice is for the buyer’s lawyer to keep 25% (or 50%) of the price in trust (a holdback) and pay the seller the rest. When the certificate arrives, the holdback is released to the seller. If it has not arrived by the deadline (30 days after the end of the month of closing), the lawyer sends the money to the CRA. The buyer is then protected and the seller settles up through a tax return.

Both lawyers should confirm this in writing (an undertaking). Missing the deadline can expose the buyer to interest and penalties.

The "residency" clause in the agreement

The standard Ontario agreement of purchase and sale (OREA Form 100) normally has a "Residency" clause. In it the seller promises they are not a non-resident under the Income Tax Act, and if they are, the buyer is credited against the price with the amount the buyer must pay the CRA, unless the seller delivers the certificate on closing.

Check the exact wording and clause number in the form you sign. Even with the clause, the buyer’s legal duty does not disappear. If the seller falsely claims to be a resident, the buyer can still be liable unless they made a "reasonable inquiry".

What the buyer must do

• Ask directly, through your agent, whether the seller is a Canadian resident, and have your lawyer get a written statutory declaration from the seller on closing. That is the basis of the "reasonable inquiry" the law talks about.
• Warning signs: the seller’s address is abroad, the documents are signed abroad under a power of attorney, the home has been empty or rented for a long time, mail goes overseas. Citizenship does not make someone a resident.
• If the seller is a non-resident, have your lawyer put a 25% (or 50%) holdback into the agreement or closing documents. The holdback is part of the price that would go to the seller, not extra money from you.
• Since 2022 the CRA can refuse to issue the certificate if the seller’s Underused Housing Tax (UHT) returns and payments are not up to date (s. 116(8)). Non-resident sellers should check early that UHT returns and payments for 2024 and earlier years are done (there is no UHT return or tax for 2025 and later years).
• Do not count on title insurance to pay this tax. Check what your policy covers with your lawyer. If your lawyer does not handle it, you may have to pay.

Worked examples

For reference only. The seller’s real tax depends on their gain, costs and any tax treaty; the buyer’s duty depends only on whether there is a certificate and on the price. Mortgage payouts, commission and other adjustments are left out.

Example