Selling Canadian Property as a Non-Resident: The Section 116 Clearance Process (and That 25% Holdback)

The core risk: with no clearance certificate, the buyer withholds 25% (50% on certain property). According to CRA, if the seller has not obtained a Section 116 Certificate of Compliance by closing, the buyer becomes liable for the vendor’s tax under subsection 116(5) — so the buyer is entitled to withhold 25% of the gross proceeds (or 50% for certain property reported on Form T2062A) and must remit it to the Receiver General within 30 days from the end of the month in which the property was acquired (According to the CRA / Canada.ca, 2026). Note it is calculated on the gross sale price, not your profit — on a $1.5M home that is $375,000 held back.

Confirm your tax status before listing

• Determine whether you are a Canadian tax resident on the closing date — that is the moment CRA looks at, not your status when you bought.
• Have a cross-border accountant estimate the capital gain and tax owing, so you know roughly how much the holdback will tie up.
• Gather your purchase cost, capital improvements, and whether you ever reported rental income — this affects whether you file T2062 or T2062A.

Apply to CRA for the clearance certificate (T2062 / T2062A)

• Use T2062 for capital property — for example, a home held for personal use or pure appreciation.
• Use T2062A for depreciable property, long-term rentals, or non-capital / resource and timber property — this is the category tied to the 50% withholding measure.
• You can apply on a proposed disposition before closing; once satisfied, CRA issues T2064, and after the actual sale closes it issues T2068, the final certificate of compliance (According to the CRA / Canada.ca, 2026).

Pay the tax or post security to earn the certificate

• CRA does not issue the certificate for free: you must pay the tax estimated on the disposition, or provide security CRA accepts.
• Once paid, CRA states a certificate limit on the document — the withholding is calculated on gross proceeds minus that limit, so a sufficient limit reduces the holdback to zero.
• This is usually the slowest link in the timeline, which is exactly why you apply early.

The 10-day notification (a hard rule)

• Under subsection 116(3), a non-resident vendor must notify CRA within 10 days of disposing of taxable Canadian property.
• Miss it and the penalty under subsection 162(7) is $25 per day, minimum $100, maximum $2,500 (According to the CRA / Canada.ca, 2026).
• The dollar amount is small, but it signals that CRA treats on-time reporting as mandatory compliance — do not let the modest penalty tempt you to delay.

The lawyer's holdback and comfort letter

• In practice the certificate often is not ready by closing. The standard move is for your real estate lawyer to hold back an amount equal to the 25% (or 50%) in trust rather than release it to you.
• Once your accountant secures CRA’s certificate (T2068), the lawyer settles against the certificate limit and refunds any over-withheld amount to you.
• Lawyers sometimes use a comfort letter to bridge the gap, but the money stays frozen until the certificate lands. In short: getting the certificate equals getting your final proceeds.

Q: Is the 25% based on my profit or the whole sale price?

On the gross proceeds — the whole sale price — not the profit. According to CRA, with no clearance certificate the buyer withholds 25% (50% on certain property) of the proceeds minus the certificate limit. So even if your home barely appreciated, the holdback can be a large amount of cash, so plan your financing accordingly (According to the CRA / Canada.ca, 2026).

Q: When must I notify CRA?

Under subsection 116(3) of the Income Tax Act, a non-resident vendor must notify CRA within 10 days of disposing of the property. Missing the deadline triggers a penalty under subsection 162(7): $25 per day, minimum $100, maximum $2,500 (According to the CRA / Canada.ca, 2026). In practice your accountant files the request on your behalf.

Q: How long does the clearance certificate take, and does it affect when I get paid?

CRA processing times vary, and the certificate is often issued after closing. That is precisely why the lawyer holds funds back in trust — once the certificate (T2068) is issued and settled against the certificate limit, any over-withheld amount is refunded to you. Applying early shortens the time your money is frozen.

Q: What is the difference between T2062 and T2062A?

T2062 is for capital property such as a home held for personal use or appreciation. T2062A is for depreciable property, Canadian real property that is not capital property, and resource or timber property — the category linked to the 50% withholding measure. Which form applies depends on your property type and whether you reported rental income and depreciation over the years; a cross-border accountant should make that call (According to the CRA / Canada.ca, 2026).

Q: What happens if the buyer does not withhold?

It is a serious risk for the buyer. Under subsection 116(5), if the seller has not obtained a clearance certificate, the buyer can be held liable for the vendor’s tax and must remit it to CRA within 30 days from the end of the month the property was acquired. That is why nearly every buyer’s lawyer insists on the holdback — it is not obstruction, it protects the buyer (According to the CRA / Canada.ca, 2026).