Buying From a Non-Resident Seller in Canada: The 25% You Must Hold Back, the Section 116 Certificate, and the Buyer Who Gets Stuck With the Tax

Short version: Section 116 Certificate: Selling Canadian Property

The purchaser of Canadian real property inherits a tax obligation most buyers have never heard of, and it attaches whether or not the buyer knew the seller was a non-resident. The rule: when a non-resident of Canada disposes of taxable Canadian property — real property in Canada above all, plus shares deriving their value from it and certain other categories — the purchaser is liable to pay, on the non-resident vendor's behalf, 25% of the purchase price (50% for certain depreciable and resource property, and different rates for some categories) unless the vendor provides a certificate of compliance issued by the CRA under section 116 (the clearance certificate, obtained by the vendor filing the notification and paying or securing the tax on the gain), or the certificate's limit covers the purchase price; the purchaser withholds the amount from the proceeds and remits it to the CRA within 30 days after the end of the month in which the property was acquired; and a purchaser who fails to withhold and remit is personally liable for the amount, plus interest and penalties — the buyer pays the seller's tax. The protection: the purchaser is not liable where, after reasonable inquiry, the purchaser had no reason to believe the vendor was a non-resident — the reasonable-inquiry defense, which is why every Canadian real estate closing includes the vendor's statutory declaration or affidavit of residency, and why a buyer whose lawyer obtained the declaration and had no contrary indication is protected even where the vendor lied. The inquiry's limits: reasonable inquiry means what the purchaser could reasonably have found — a vendor's declaration of residency, corroborated by the ordinary indicia (a Canadian address, a Canadian lawyer, no contrary information), suffices; a vendor with a US address on the listing, a US phone number on the agreement, or a known move abroad puts the purchaser on notice, and a declaration obtained in the face of such indications may not satisfy the defense; and the purchaser's lawyer, not the purchaser, conducts the inquiry in practice, with the lawyer's file being the evidence. The closing mechanics when the vendor is a non-resident: the vendor's lawyer applies for the section 116 certificate (Form T2062 for real property, with the gain computed and the tax — 25% of the gain, or the tax on the gain where computed — paid or secured), the CRA issues the certificate (weeks to months; the CRA's processing times are the closing's critical path), and if the certificate is in hand at closing with a certificate limit at or above the purchase price, the purchaser withholds nothing; if the certificate is not yet issued at closing — the common case — the purchaser's lawyer holds back 25% of the purchase price in trust (the holdback), the purchase closes, the vendor obtains the certificate afterward, and the holdback is released to the vendor (less any tax the certificate requires) or remitted to the CRA if the certificate does not arrive within the remittance deadline — with the CRA's administrative practice allowing the holdback to be retained pending the certificate where the vendor has applied, subject to the comfort-letter process the vendor's lawyer requests; and if the vendor refuses to cooperate, the purchaser withholds and remits 25% of the full purchase price — protecting themselves at the vendor's expense, which is the leverage that makes vendors cooperate. The purchaser's cost: none, if the process runs — the withholding is the vendor's tax paid from the vendor's proceeds; the purchaser's exposure is only where the process is skipped; and the purchaser's lawyer's fee for the holdback and remittance is a closing cost the purchase agreement can allocate. The categories that catch buyers: a private sale without lawyers (the buyer who skips the declaration has no inquiry and no defense); an assignment or pre-construction purchase where the assignor is a non-resident (the assignment of a purchase agreement for a condo is a disposition of taxable Canadian property by the assignor, and the assignee is a purchaser with the withholding obligation — the pre-construction guide's territory); a purchase from an estate whose deceased was a non-resident (the estate's executor is the vendor; the non-residency question follows the estate); a purchase of shares of a private corporation whose value is principally Canadian real property (the shares are taxable Canadian property, and the share purchaser has the obligation — commercial transactions run the section 116 analysis on share deals); and a purchase from a vendor who became a non-resident between the agreement and the closing (residency at the time of disposition governs). The US-side note for a US-resident purchaser (a Canadian buying while living in the US, or an American buying in Canada): the purchaser's own residency is irrelevant to the withholding obligation — a non-resident purchaser buying from a non-resident vendor withholds the same 25% — and the purchaser's obligation runs to the CRA regardless of where the purchaser lives. The advice to buyers is administrative: never close without the vendor's residency declaration in the lawyer's file; treat any US or foreign indicator on the vendor's side as notice requiring the certificate process; and, where the vendor is a non-resident, expect the holdback, price the closing timeline around the CRA's processing, and never release the holdback without the certificate or the CRA's written comfort.

Key takeaways

• The purchaser is liable for the non-resident vendor's tax unless the vendor provides a section 116 certificate covering the price or the purchaser withholds 25% (50% for certain property) and remits within 30 days after the month of closing.
• Reasonable inquiry is the defense: the vendor's residency declaration, obtained by the purchaser's lawyer with no contrary indication, protects the purchaser even if the vendor lied — but US addresses, foreign numbers, or a known move put the purchaser on notice.
• The holdback is the closing mechanic: where the certificate hasn't arrived, the purchaser's lawyer retains 25% in trust, the sale closes, and the holdback is released on the certificate or remitted to the CRA — never released on the vendor's word.
• The purchaser's cost is zero if the process runs: the withholding comes from the vendor's proceeds; exposure exists only where the process is skipped.
• The categories that catch buyers: private sales without lawyers, assignments from non-resident assignors, estate sales with non-resident deceased, share purchases of real-property corporations, and vendors who emigrated between agreement and closing.
• The purchaser's own residency doesn't matter: a US-resident buyer withholds the same 25% from a non-resident vendor; the obligation runs to the CRA.

The buyer's section 116 checklist

Vendor's residency declaration in the lawyer's file before closing. Any foreign indicator on the vendor's side → treat as non-resident and require the certificate process. Non-resident vendor: certificate limit compared to price; holdback of 25% (or the applicable rate) in trust if the certificate is pending; release only on the certificate or the CRA's comfort letter; remittance to the CRA within 30 days after the month of closing if the certificate does not arrive. Assignments, estate sales, and share deals run the same analysis. The checklist is the purchaser's lawyer's routine — and the buyer's job is to make sure the lawyer ran it.

Worked example

A Calgary couple buys a Canmore chalet for C$1.4 million from a vendor listed with a Scottsdale address. Their lawyer treats the vendor as a non-resident from the first document: the vendor's lawyer confirms non-residency and applies for the section 116 certificate with the gain computed (C$600,000) and the tax secured; the certificate does not arrive by closing (the CRA's processing is running eight weeks); the purchasers' lawyer holds back C$350,000 (25% of the price) in trust, the sale closes, and the vendor receives C$1.05 million. Seven weeks later the certificate arrives with a limit of C$1.4 million — the holdback is released to the vendor in full (the vendor had paid the tax on the gain to obtain it). The purchasers' cost: their lawyer's holdback fee and no tax. The contrasting file at the same firm: a buyer who purchased a Kelowna condo privately, without a lawyer, from a vendor who had moved to Texas — no declaration, no inquiry, no withholding; the CRA assessed the purchaser for 25% of the C$700,000 price (C$175,000) plus interest two years later, and the reasonable-inquiry defense was unavailable because no inquiry had been made; the purchaser's recourse was a civil claim against a vendor in Texas for tax the vendor should have paid — the outcome the 25% holdback exists to prevent, and the reason the declaration is the first document in every closing file.

Official sources

The CRA explains that where a non-resident vendor does not obtain a section 116 certificate of compliance, "the purchaser is entitled to withhold 25% (50% on certain types of property) of the proceeds" and remit it to the CRA. — Canada Revenue Agency, Disposing of or acquiring certain Canadian property, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/disposing-acquiring-certain-canadian-property.html

"If you sold or disposed of property in 2025 and your taxable capital gains for the year were more than your allowable capital losses, you have to include the difference on line 12700 of your return." — Canada Revenue Agency, Capital gains, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains.html

Practitioner note

Section 116 from the buyer's side is a liability that attaches whether or not the buyer knew, and the defense is a piece of paper in the lawyer's file: the vendor's residency declaration, obtained without contrary indication. Our buyer checklist treats any foreign indicator as non-residency, runs the holdback on every non-resident vendor, and never releases it without the certificate — because the buyer who skips the process pays the seller's tax, and the seller is in Texas.

See also: For selling a Florida home before or after a move back to Canada, see selling a Florida home before or after a move back to Canada; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the purchaser's section 116 protection — vendor residency inquiry and declaration, holdback structuring and release conditions, remittance timing, and the analysis for assignments, estate sales, and real-property share purchases. See cross-border pricing or book a call.