When a non-resident of Canada sells Canadian real estate, section 116 of the Income Tax Act requires the purchaser to withhold 25% of the gross sale price — or 50% for depreciable property, such as the building portion of a rental property — unless the seller provides a certificate of compliance (clearance certificate) from the CRA. In practice, the purchaser's lawyer holds back this amount at closing.
How the clearance process works
- File Form T2062 (and T2062A for depreciable property) no later than 10 days after the sale — ideally before closing, so the certificate is ready sooner.
- Pay or secure the tax on the gain. The CRA generally requires 25% of the estimated capital gain (50% of the gain or recapture on depreciable property), not of the full sale price.
- Receive the certificate. The CRA issues the certificate of compliance, and the lawyer releases the rest of the holdback to you.
- File the Canadian tax return for the year of sale. Your actual tax is calculated on the return, and any amount paid in excess is refunded.
Missing the 10-day deadline can result in penalties, and without a certificate the purchaser must remit the full holdback to the CRA — which can tie up a large part of your sale proceeds until your return is assessed.
The proposed increase of this withholding rate to 35% (announced in 2024 together with the capital gains inclusion rate change) was cancelled in March 2025. The rate remains 25%.
If you are a non-resident planning to sell Canadian property, contact us before the sale — early planning makes the clearance faster and avoids unnecessary holdbacks.