Selling Canadian property as a non-resident: A T2062 example

If you are a non-resident of Canada for income tax purposes and sell Canadian real estate, there are additional tax steps you need to take. This example shows how the process works, how much money may be held back from your sale, and what happens after you receive your CRA Certificate of Compliance.

Meet Christine

Christine lives in the United States and is a non-resident of Canada for income tax purposes. She owns a vacant piece of land in Nova Scotia and has agreed to sell it.

Christine owns the land personally, and it is considered capital property. For this example, there is no mortgage, the selling costs are paid at closing, and all amounts are in Canadian dollars.

• Original purchase price: $300,000

• Eligible purchase costs: $10,000

• Adjusted cost base: $310,000

• Sale price: $600,000

• Eligible selling costs: $30,000

Step 1: Christine accepts an offer

Christine accepts an offer to sell the property for $600,000. The sale is scheduled to close on September 15.

Because Christine is a non-resident, the purchaser may need to withhold part of the purchase price until the CRA issues a Certificate of Compliance.

For this type of property, the purchaser’s potential withholding without an applicable certificate is generally 25% of the purchase price:

$600,000 × 25% = $150,000

This does not mean Christine’s final tax bill will be $150,000. It is an amount related to the purchaser’s potential liability under the non-resident property sale rules.

Step 2: Christine contacts Avanti Tax

Christine contacts Avanti Tax after accepting the offer. We review the transaction, explain the process, and identify the documents needed to prepare her application.

These may include:

• The original purchase agreement and closing documents.

• Records of eligible purchase costs and improvements.

• The agreement to sell the property.

• Details of selling expenses.

• Christine’s Canadian tax identification information.

• Contact information for her Canadian real estate lawyer.

Starting early gives us more time to prepare the application and coordinate with the lawyer and the CRA.

Step 3: Avanti Tax prepares the T2062 application

Avanti Tax calculates the amount required for the certificate and prepares Form T2062, the request for a Certificate of Compliance.

We submit the application to the CRA with the necessary supporting documents. An application can be submitted before the sale closes. If the CRA has not already been notified, notification is generally required within 10 days after the disposition.

Late notification can result in a penalty of $25 per day, with a minimum of $100 and a maximum of $2,500.

Step 4: The sale closes and funds are held back

Christine’s sale closes on September 15, before the CRA has issued the certificate.

In this example, the lawyers arrange for $150,000 to be held back while the clearance process is completed. Christine’s $30,000 in selling costs is also paid at closing.

Sale proceeds at closing:

• Sale price: $600,000

• Less amount held back: $150,000

• Less selling costs paid at closing: $30,000

• Initially released to Christine: $420,000

The actual holdback and how it is handled depend on the transaction and the lawyers’ arrangements.

Timing matters: If an amount is payable by the purchaser under the section 116 rules, it generally must be remitted to the CRA within 30 days after the end of the month of acquisition. For Christine’s September 15 closing, that would generally be October 30. The purchaser’s lawyer must assess the applicable obligations and deadline.

Step 5: Payment is made to the CRA

For the certificate calculation, the CRA generally uses the sale proceeds minus Christine’s adjusted cost base. Selling costs are not deducted at this stage.

Certificate payment calculation:

• Sale price: $600,000

• Less adjusted cost base: $310,000

• Amount used to calculate the payment: $290,000

• Payment rate: 25%

• Payment to the CRA: $72,500

Avanti Tax coordinates with Christine and her lawyer to arrange the required payment or acceptable security. In this example, $72,500 of the held-back funds is paid to the CRA.

This is an interim payment toward Christine’s Canadian tax, not necessarily her final tax bill.

Step 6: The CRA issues the Certificate of Compliance

Once the CRA has reviewed the application and received the required payment, it issues a Certificate of Compliance.

For this example, assume the certificate is issued before the purchaser’s remittance deadline, covers the full sale price, and the lawyers are satisfied that the purchaser’s obligations have been addressed. The remaining holdback can then be released to Christine.

Holdback calculation:

• Amount held back at closing: $150,000

• Less payment sent to the CRA: $72,500

• Remaining amount released to Christine: $77,500

Christine has now received $497,500: the $420,000 released at closing plus the $77,500 released after clearance. Her $30,000 selling costs have been paid, and the $72,500 paid to the CRA remains a credit toward her Canadian tax.

Avanti Tax follows up with the CRA and coordinates with the lawyer throughout this stage.

Step 7: Christine files her Canadian tax return

After the end of the year, Christine files a Canadian income tax return reporting the sale. At this stage, her eligible selling costs are included in calculating her capital gain.

Capital gain calculation:

• Sale price: $600,000

• Less adjusted cost base: $310,000

• Less eligible selling costs: $30,000

• Capital gain: $260,000

The tax return determines Christine’s final Canadian tax payable based on her circumstances.

For illustration, assume her final Canadian tax is $35,000.

Final tax calculation:

• Interim payment made to the CRA: $72,500

• Less assumed final Canadian tax: $35,000

• Illustrative refund: $37,500

If Christine has overpaid, the CRA may issue a refund after assessing her return. If her final tax is greater than the amount paid, she may owe an additional amount. The $35,000 tax figure is an assumption used to illustrate the process; actual tax and refunds depend on the seller’s circumstances.

How Avanti Tax can help

From the accepted offer through the issuance of the Certificate of Compliance, Avanti Tax can:

• Review your transaction and supporting documents.

• Calculate the estimated gain and required certificate payment.

• Prepare and submit your T2062 application.

• Coordinate payment or acceptable security with you and your lawyer.

• Respond to CRA inquiries and follow up on the application.

• Coordinate with your lawyer once the certificate is issued.

Our T2062 fee starts at $1,750. Most applications are $1,750, with fees increasing for more complex situations. Canadian tax return preparation can also be discussed separately.

Selling Canadian property as a non-resident?

Contact Avanti Tax early in the process. We’ll help you understand the requirements and guide you through the steps.

This example is simplified and uses vacant land. Rental and other depreciable property can involve additional requirements, including Form T2062A. Actual withholding, payment, tax and refund amounts depend on the facts of each transaction.