Selling Canadian Property as a Non-Resident: Section 116, the Clearance Certificate, and the 25% Holdback

Keeping the Canadian house or condo after moving to the U.S. is common — and eventually, many owners sell. That's when they discover the sale of Canadian property by a non-resident runs through a special machine, built to make sure the CRA gets paid by someone who no longer lives there. The machine works fine. It just holds a large piece of your money while it runs — unless you work it properly.

Why the buyer holds back your money

Canada can't easily chase a seller in Florida for tax after closing, so the law deputizes the buyer: unless the CRA certifies the tax is handled, the buyer must withhold — generally 25% of the gross purchase price for typical residential property (more for certain property types) — and remit it to the CRA. Buyers' lawyers enforce this ruthlessly, because a buyer who doesn't withhold becomes liable for the seller's tax personally. Note the ugly word: gross. On a $1M sale, that's $250,000 parked — regardless of what you paid for the property or how small the actual gain is.

The Section 116 clearance certificate

The release valve is the clearance certificate under section 116 of the Income Tax Act. You (the seller) apply — Form T2062, filed ideally before closing or within 10 days after — disclosing the sale, the cost, and the expected gain, and paying (or securing) tax of 25% of the estimated gain (not the gross price). Once the CRA processes it and issues the certificate, the buyer's holdback is released down to what the certificate covers.

Practical realities of the process:

• It's slow. Certificate processing takes months, not days. Applying early — as soon as the sale is firm — is the single biggest thing you control. Until the certificate arrives, the holdback sits with the buyer's lawyer in trust.
• The 10-day notification isn't optional. Late notification carries penalties even when no tax ends up owing.
• The certificate isn't the final tax. The next spring, you file a Canadian non-resident return reporting the actual gain with actual costs and selling expenses — which usually produces a refund, since the certificate stage worked from estimates on the gain and the holdback stage from the gross price.

"But it was my principal residence"

If the property was your home before the move, Canada's principal residence exemption shelters the gain for the years you lived there (as a Canadian resident) — the gain is prorated across your ownership years, and the resident years fall away. The years after you left are taxable. Two planning notes: the value at departure versus a formal valuation, and the treaty's coordination of the two countries' cost bases, both reward being handled at move time rather than reconstructed at sale time. And renting the place out after leaving means the non-resident landlord regime — NR6, Section 216, NR4 — should have been running all along; the sale is where gaps in those years surface.

The U.S. side of the same sale

As a U.S. resident, you report the sale on your U.S. return too. The U.S. runs its own home-sale exclusion (up to $250,000 of gain, $500,000 married filing jointly) with its own conditions — broadly, having owned and used the home as your main residence for two of the last five years — which a recent mover may still satisfy and a long-since mover won't. Where both countries tax a slice of the gain, foreign tax credits for the Canadian tax do the reconciling. The classic failure is a sale reported in one country and not the other; the second-classic is two returns done by two advisors who never aligned the numbers.

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Related reading: - Section 216, NR6, and NR4 — the Non-Resident Landlord's Rulebook - Canada's Departure Tax, Explained: T1161 and T1243