What you need to do as a Non-tax residents disposing a Canadian Property?

1. You must file an application for a clearance certificate (T2062, Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property) within 10 days of the sale closing. Until a clearance certificate is received the purchaser can be liable for Canadian taxes equal to 25 per cent of the purchase price. In order to cover this potential liability, the lawyers in the transaction often hold in trust 25 per cent of the sale proceeds until the clearance certificate is issued. 

2. Make the payment of the tax liability as estimated on the clearance certificate. The tax liability will equal 25 per cent of the estimated gain on the property sale as reported to the CRA on the clearance certificate. If the property has been rented and a capital cost allowance deduction has been claimed on the building, the CRA will assess an additional tax liability of 50 per cent on this portion of the gain. The estimated tax liability is then paid to the CRA from the sale proceeds held in trust by the purchaser’s lawyer. Upon receipt of the clearance certificate. any balance remaining in the lawyer’s trust account is then released.

If there is rental income has been earned from the property and has not been reported annually to the CRA under Section 216 of the Canadian Income Tax Act (ITA), the clearance certificate will be withheld until all Section 216 returns have been assessed and filed. 

3. Filing a Canadian tax return under Section 116 of the ITA will recover a portion of the tax liability remitted to the CRA. As the effective Canadian tax rate on capital gains will often not exceed 25 per cent. This tax return is due April 30 of the year following the year in which the sale occurred.

Depending on the time taken to process the application, receipt of the clearance certificate, and, therefore, a substantial portion of sale proceeds, can take as long as four to six months. Processing the final Section 116 tax return can also take as long as six months. .