Non-Resident Seller

• Withholding is based on the sale price (gross purchase price), not net proceeds.
• Often 25%; in some situations it can be up to 50%.
• CRA processing for a Certificate of Compliance commonly takes 8–12 weeks or longer.
• A holdback can affect mortgage payout and access to sale proceeds.

When Canadian real estate is sold by a non-resident, the Income Tax Act requires the Buyer to either obtain a Certificate of Compliance from the Canada Revenue Agency (CRA) or withhold part of the sale proceeds. The withholding acts as security for any tax that may be payable by the Seller.

The withholding is calculated on the gross purchase price (the sale price). Deductions are not used to reduce the calculation.

Residency is based on where the Seller permanently resides, not citizenship. A Canadian citizen can still be a non-resident for income tax purposes.

The withholding may be reduced or avoided if the Seller obtains a Certificate of Compliance from CRA before closing. In practice, CRA processing commonly takes 8–12 weeks or longer, and a certificate is rarely issued before completion.

Because of this timing, it is common for the Buyer’s Notary or Lawyer to withhold the required amount in trust through an undertaking with the Seller’s Notary or Lawyer.

If the Seller has applied for a Certificate of Compliance, CRA may issue a Comfort Letter allowing funds to remain in trust beyond the normal remittance deadline while CRA completes its review. It is the Seller’s responsibility to obtain the Comfort Letter and provide it within the required timeframes.

A non-resident is a Seller who does not permanently reside in Canada. Non-residency does not mean Canadian citizenship. A person may be a Canadian citizen and still be considered a non-resident. The Buyer is required to make a reasonable inquiry to determine whether the Seller may be a non-resident. The term “resident” is not defined in the Income Tax Act, and residency is determined based on multiple factors, including whether the Seller maintains a residence in Canada, family ties in Canada, time spent in Canada, bank accounts, and other social or economic connections.

• Timing: Many Sellers do not have enough time between subject removal and completion for CRA to issue a Certificate of Compliance.
• Mortgage payout risk: If 25% (or 50%) is withheld, there may be insufficient funds on closing to pay out an existing mortgage unless additional funds are available.
• Use of sale proceeds: If you are relying on full proceeds for another purchase, a holdback can significantly affect those plans.