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Knowing the Canadian tax status of a property seller is crucial when buying and selling real estate

According to Section 116 of the Tax Act, non-resident of Canada who sell Canadian property (including real estate and immovable property, including Canadian resource property and timber resource property, and certain shares that derive their value from such property) must pay tax on the capital gains generated from such sales. To ensure tax collection, if a non-tax resident has a Certificate of Compliance when selling the property, they are required to withhold 25% of the capital gains as Withhold Tax when disposing of the Canadian property. Without this certificate, the non-tax resident must withhold 25% of the total proceeds as Withhold Tax to cover subsequent taxes. This withholding tax rate will increase from 25% to 35% starting January 1, 2025.

Example:

Property sale price: $500,000With 

Certificate of Compliance: Capital gains: $100,000 x 25% = $25,000 (Withhold Tax)

Without Certificate of Compliance: Sale price: $500,000 x 25% = $125,000 (Withhold Tax)

According to Section 116(5) of the Tax Act, if the seller is a non-tax resident and has not paid the withholding tax, the buyer of the property will be held responsible for the tax liability. Therefore, it is important to know whether the seller is a tax resident when buying and selling property. The buyer is responsible for withholding 25% of the total property value as Withhold Tax.

Tax Tip: 

When you are buying real estate, or are the agent for the purchaser, get verification that will stand up in Court that the vendor is a resident in Canada, unless it is already know that the vendor is a non-resident.