If, as a non-resident of Canada, you own a property (rental or not) located in Canada, you will have to go through complex administrative procedures that may probably include tax withholding by the notary when you dispose of this property.
Also, non-residents of Canada are required to complete a Canadian income tax return in certain situations. This is the case if they performed services in Canada, carried on a business in Canada, or disposed of taxable Canadian property (such as the sale of a property).
A federal withholding tax of 25% – to which is added a provincial withholding tax of 12.875% if the property is located in Quebec – of the gross proceeds of disposition must be applied at the time of the sale. This withholding could nevertheless be reduced by filing an application for a Section 116 certificate of compliance from the Canada Revenue Agency (CRA), better known as “Certificate 116”.
Preparing Certificate 116 using Form T2062 authorizes the purchaser or their agent (often the notary) to remit to the CRA withholding tax calculated on the net gain (proceeds of disposition minus the cost of acquiring the property) rather than the gross proceeds of disposition.
This form must first be sent to and approved by the Canadian tax authorities. Depending on the type of disposition (actual or potential), the deadline for providing this form varies.
Apply for an ITN
If you have never resided in Canada, you will also need to apply to obtain an Individual Tax Number (ITN) for non-residents on the T1261 form. This number allows the tax authorities to assign the withholding tax to the correct account.
In addition, if you rented your property in the years preceding its sale, an additional form (T2062A) will be required in order to calculate the recapture of depreciation, if applicable.
At the time of the sale of the property
The disposition of your property will have to be reported on a Canadian income tax return and the potential capital gain will therefore be subject to Canadian tax according to the Canadian tax schedules. You will normally be able to recover all or part of the withholding tax otherwise applicable if the actual tax on the capital gain exceeds it.
To know more
This text represents only part of the information to consider when selling a property located in Canada. We recommend that you contact one of our tax experts. We have the necessary expertise to prepare the forms authorizing the reduction of the withholding tax and to prepare the related Canadian income tax return.