Non-Resident Tax Filing Requirements in Canada: Section 116 Clearance Guide

When a non-resident of Canada sells taxable Canadian property, section 116 of the Income Tax Act imposes a withholding obligation on the purchaser — not the vendor. If no clearance certificate is in hand at closing, the purchaser must withhold and remit 25% of the gross purchase price to CRA, regardless of the actual capital gain. This is one of the most consequential tax compliance rules in cross-border real estate and business transactions.

What is a Section 116 clearance certificate and who needs one?

A Section 116 clearance certificate is CRA’s confirmation that a non-resident seller has either paid (or secured) the applicable Canadian tax on a disposition of taxable Canadian property. Without a certificate, the purchaser is legally required to withhold 25% of the gross purchase price and remit it to CRA within 30 days after the month of closing. For a $1 million property sale with a $200,000 gain, the purchaser withholds $250,000 — not $50,000.

What is taxable Canadian property under Section 116?

Taxable Canadian property (TCP) includes: real estate situated in Canada; shares of private Canadian corporations if more than 50% of the corporation’s FMV derived from Canadian real property at any time in the prior 60 months; Canadian resource properties; and timber resource properties. Shares of public Canadian companies are generally excluded unless the non-resident held 25%+ of any class in the prior 60 months.

How long does it take CRA to issue a Section 116 clearance certificate?

CRA aims to process T2062 applications within 6–8 weeks of receiving a complete application. For real estate transactions with a fixed closing date, apply a minimum of 30–45 days before closing. If the certificate does not arrive before closing, the purchaser must withhold and remit; the vendor can then file a Canadian tax return and claim a refund of any excess withholding.

What withholding tax rate applies if no clearance certificate is obtained?

For most TCP dispositions: 25% of the gross purchase price is withheld. For depreciable property (e.g., a rental building with accumulated CCA): 50% of the amount by which proceeds exceed the undepreciated capital cost (UCC) is withheld. The withholding must be remitted to CRA within 30 days after the end of the month of closing. Failure to withhold makes the purchaser personally liable for the withholding amount plus interest.

Can a non-resident seller recover excess withholding tax?

Yes — after filing a Canadian T1 (or T2) tax return for the year of the disposition, any withholding in excess of the actual tax owing on the gain is refunded. CRA processes the return and issues a refund for the excess withheld. This process typically takes 3–6 months after the return is filed.

Does Section 116 apply to sales between non-residents?

Yes — the withholding obligation applies regardless of whether the purchaser is Canadian or non-resident. A non-resident buyer purchasing Canadian real estate from another non-resident must still obtain the clearance certificate or withhold and remit to CRA.

Reviewed by: Bader A. Chowdry, CPA CA LPA — Insight Accounting CPA Professional Corporation, Mississauga, Ontario. Last reviewed: June 6, 2026.