📖 Selling

Selling Your Ontario Home When You Owe the CRA: How Your Sale Proceeds Get Paid Out

A tax debt does not stop the sale. What it changes is the order your money is paid on closing day — and how much is left at the bottom for you.

Arthur Zhao · Broker · AZ Real Estate Partners · 2026-09-26

Quick Answer

If I owe the CRA when I sell my Ontario home, where does that debt stand in line to be paid from my sale proceeds — and what is left for me?

Behind any mortgage registered before the CRA’s memorial, ahead of your own net proceeds, and only after the CRA has taken specific registration steps. The CRA reaches your title in stages: it certifies the unpaid amount and registers that certificate in the Federal Court, where it carries the same effect as a court judgment against you (Income Tax Act s.223(3)). It can then be recorded provincially as a memorial — in the same manner as a document evidencing an Ontario superior court judgment — which creates a charge or lien on your property (s.223(5)). But s.223(6) is the line that decides your money: that charge is subordinate to any charge already perfected against other creditors before the memorial was registered. Your mortgage, registered years earlier, is exactly that. So on closing the mortgage is cleared first, the CRA charge next, and whatever remains is released to you.

Source: Income Tax Act (Canada), s.223, Justice Laws Canada, current to 2026-09-03.

I’m Arthur Zhao, a Toronto real estate broker. Before most people list, they run a version of the same arithmetic on the back of an envelope: take the price they hope to get, subtract what is left on the mortgage, subtract commission and legal fees, and land on a rough number — the amount they expect to walk away with.

If you also owe the Canada Revenue Agency, that arithmetic has one more line in it. And the question that decides your final number is not whether the debt exists — it is where that line sits in the order your sale proceeds are paid out. On closing day a fixed sequence runs through your lawyer’s trust account, and a CRA tax debt has a specific, predictable place in it. This article walks through that order: who is paid first, where the CRA lands, and what is left at the bottom for you.

Sale price into trust

→

Registered mortgage cleared first

→

CRA charge and other executions cleared

→

Net proceeds to you

The Sale Price Is Not the Money You Keep

When your sale closes, the buyer’s funds do not land in your bank account. They land in your lawyer’s trust account, and your lawyer pays out a sequence of claims before releasing what is left to you. Two kinds of things come out of that money. The first is the ordinary cost of doing the deal — real estate commission and legal fees. The second, and the one a tax debt belongs to, is anything registered against the property that has to be cleared so you can deliver clear title to the buyer.

You cannot hand over a house with an unresolved charge sitting on it. So every charge registered against your title has to be dealt with out of the proceeds at closing. That is why the size of your tax debt matters less than one thing: how much money is ahead of it in line, and how much is behind.

ℹ️Owing the CRA does not, by itself, stop you from selling your home. It changes how the proceeds are distributed at closing — not your right to sell.

Two Claims on the Same House: Your Mortgage vs. the CRA Charge

Your registered mortgage

The CRA charge (memorial)

When it attaches

When you registered it — often years before any tax issue

Only after the CRA certifies the debt and records a memorial against your property

How it sits on title

A registered charge, perfected against other creditors

Recorded in the same manner as an Ontario superior court judgment (s.223(5))

Where it ranks

First — it was perfected before the memorial

Subordinate to the mortgage under s.223(6)

At closing

Paid out and discharged first

Cleared next, from whatever proceeds remain

💡 The order is not about which claim is more important — it is about timing. s.223(6) subordinates the CRA charge to any charge whose steps to bind other creditors were completed before the memorial was registered. A mortgage registered years earlier meets that test.

The Order Your Sale Proceeds Get Paid Out

Here is the sequence that runs on closing day, from the top of the stack down to your cheque:

First: your registered mortgage is discharged

Where the lender’s charge was perfected before the CRA registered its memorial, s.223(6) puts it ahead, so it is paid out of the proceeds and discharged ahead of the tax debt. For many sellers this is the largest claim, and it comes off the top. (A charge registered after the memorial, such as a later refinance, does not get this protection under the wording of s.223(6).)

Next: the CRA charge and any other executions are cleared

If the CRA has registered a memorial against your property, it appears in the writ (execution) search the buyer’s lawyer runs against your name, and it has to be cleared before you can convey clear title. It is paid from the proceeds that remain after the mortgage — because s.223(6) places it behind that mortgage, not ahead of it.

How the executions rank among themselves

A CRA debt is not necessarily the only claim that can attach this way. Other judgment creditors who have registered a writ against your name are dealt with from the same pool of proceeds. This article does not rank the CRA charge against them — that ordering turns on timing and provincial rules your real estate lawyer works through on the file.

Last: your net proceeds are released to you

Whatever is left after every prior-ranking claim is cleared is your net proceeds. You sit at the bottom of the waterfall by design — which is why the practical question is always whether there is enough between the sale price and the mortgage to clear the tax debt and still leave you a positive number.

Why the CRA Sits Behind Your Mortgage

It is worth understanding why the ranking falls this way, because it is not the CRA choosing to wait its turn. The Income Tax Act builds the claim in steps. First the Minister certifies the unpaid amount (s.223(2)). Registered in the Federal Court, that certificate has the same effect as a judgment obtained in the Court against you for the debt (s.223(3)). A memorial evidencing it can then be filed provincially in the same manner as a document evidencing a judgment of Ontario’s superior court — and that is what creates the charge or lien on your property (s.223(5)).

The decisive rule is s.223(6): the charge created that way is subordinate to any charge, lien or priority for which all the steps necessary to make it effective against other creditors were taken before the memorial was registered. A mortgage you registered years ago cleared that bar long before the CRA’s memorial existed, so it ranks ahead. The tax debt does not leapfrog your lender; it lines up behind it.

When the Math Does Not Leave Enough

The order only produces a happy ending when there is enough equity to go around. If your mortgage payoff plus the CRA charge is close to — or more than — your sale price, you cannot simply close and settle the tax later: the charge has to be resolved to deliver clear title. That is the situation to get in front of early, with your lawyer and, where needed, the CRA. The Income Tax Act itself contemplates the charge being cancelled, withdrawn, or postponed to another interest (s.223(7)) — but arranging any of that takes time and is handled through your lawyer and the CRA, not at the closing table. The takeaway is not alarm; it is that you want to know your numbers before you commit to a closing date.

⚠️This article explains how the law orders payment; it is not legal or tax advice. If you are selling with an unpaid tax balance, involve a real estate lawyer before you sign an agreement of purchase and sale, and speak with the CRA about the balance. The right sequence depends on your specific numbers and title.

💡 My read is simple: the number that decides how a CRA debt affects your sale is your equity after the mortgage — not the size of the debt itself. If the proceeds left once your lender is paid comfortably cover the tax charge, it is just a line item your lawyer clears at closing, and your cheque is still positive. If they do not, the debt stops being a line item and becomes a condition of the sale. That is the version worth mapping out with a lawyer before you commit to a closing date.

Sources

Income Tax Act (Canada), s.223 — certificates, Federal Court registration, and provincial charges/liens. Justice Laws Canada, current to 2026-09-03.

Frequently Asked Questions

Out of my sale proceeds, does my mortgage get paid before the CRA debt?

Yes, if your mortgage was registered and perfected before the CRA registered its memorial. Income Tax Act s.223(6) makes the CRA charge subordinate to any charge whose steps to bind other creditors were completed first. So at closing the mortgage is discharged from the proceeds ahead of the tax debt.

If the CRA has a charge on my property, is there anything left for me at closing?

There can be. Your net proceeds are the last thing paid in the closing waterfall — whatever remains after prior-ranking claims like your mortgage are cleared and the CRA charge is dealt with. If your equity after the mortgage exceeds the tax charge, you still walk away with a positive amount. If it does not, there may be nothing left, which is why knowing your numbers before you list matters.

Can I just sell the house and settle the CRA debt afterward?

Generally no. A registered CRA charge shows up in the execution search against your name, and it has to be cleared to convey clear title to the buyer, so it is normally paid from your proceeds at closing. The Income Tax Act does contemplate a charge being withdrawn or postponed to another interest (s.223(7)), but that is arranged in advance through your lawyer and the CRA — not deferred past the closing on your own.

What if my sale proceeds do not cover the CRA amount after my mortgage?

Then the debt stops being a simple line item and becomes a condition of the sale, because the charge still has to be resolved for the buyer to get clear title. This is the case to map out early with a real estate lawyer, and with the CRA where a discharge or postponement is needed (s.223(7)). It is best addressed before you commit to a closing date, not on closing day.

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