Who this is for
- Non-resident individuals whose Canadian property sale has closed with part of the price held back
- Former Canadian residents who sold a home or rental property after leaving
- Non-resident co-owners, including spouses, of a sold property
Not covered here
- Section 116 notices, forms and late-notice penalties before or at closing
- How much of the gain the principal residence exemption covers
- Quebec's separate provincial certificate and buyer payment
- Refunds of other non-resident withholding
- US tax on the same sale
Why was the non-resident holdback a share of the whole sale price?
The holdback is the buyer's own tax exposure, not an estimate of your tax. Without a certificate, a buyer who acquires taxable Canadian property from a non-resident is liable for 25% of the buyer's cost, less any certificate limit, and may withhold that amount from the price. For depreciable property such as a rental building the rate is 50%, and for real estate that is not capital property it is 50%, of the amount paid (Income Tax Act, section 116(5) and (5.3)).
Your actual tax is on the gain, so the holdback is often more than the tax owed. Any excess is what you can recover. Where the money is now decides how:
| Where the holdback is | What releases it | What to gather |
|---|---|---|
| Still in the lawyer's trust account | A certificate for the sale, then the closing terms you signed; the sale-year return settles the rest | Closing statement, the holdback clause, the CRA certificate |
| Remitted to the CRA by the buyer | Assessment of your sale-year non-resident return | Proof of remittance, sale documents, cost records |
A case is not simple when the property was rented or co-owned, the notice to the CRA was late or missed, the home was your principal residence for some years, you have not filed Canadian returns since leaving, the lawyer will not release the money, or another country also taxes the sale. Each changes the certificate or the return.
How long until I get the holdback back?
It depends on where the money is. In trust, it can be released once the CRA issues the certificate, which the CRA says it does at the earliest possible date after it has the documents and payment, with no fixed time (IC72-17R6, para 45). If no certificate covers the sale, the buyer must remit within 30 days after the end of the month of closing. After that, the money comes back only when your sale-year return is assessed, which cannot happen before that year ends (IC72-17R6, para 60). If the sale just closed, sending the completed-sale notice and payment quickly is what can keep the money in trust.
Is my holdback still with the lawyer or already with the CRA?
Ask the buyer's lawyer in writing. If no certificate covers the sale, the buyer must remit the tax within 30 days after the end of the month the property was acquired (section 116; IC72-17R6, para 55). A buyer who remits late can be charged penalty and interest (IC72-17R6, para 56).
If the lawyer has remitted, ask for the amount, the date and the particulars sent with it. If the lawyer still holds it, ask what the closing terms require before release. That answer tells you which path below applies.
Can a certificate issued after closing release the money held in trust?
It can, if the buyer has not yet remitted the holdback and the closing terms allow release on a certificate. After you notify the CRA of a completed sale and pay 25% of the gain or give acceptable security, the CRA issues Form T2068 to you and the buyer (section 116(4); T4058). The payment can come from the money the lawyer holds: the CRA accepts a cheque drawn on a lawyer's trust account (IC72-17R6, para 44). The CRA issues a certificate only if you have an identification number, so a seller with no SIN applies for an individual tax number first (IC72-17R6, para 9; filing without a valid SIN). For a home, the CRA may also decline the certificate while Underused Housing Tax returns or tax for the property are outstanding (section 116(8)).
Once a T2068 is issued, the buyer is no longer liable under section 116(5) for that property. A certificate for a proposed sale (T2064) protects the buyer only up to its certificate limit; above it, the buyer stays liable for 25% of the difference (section 116(5)). The certificate is not your final tax: the CRA says it protects the buyer for that notice, and your own tax is settled when your sale-year return is assessed (IC72-17R6, para 46–47).
Neither the Act nor the circular says when the lawyer must hand over the trust money. That is set by the closing terms. A certificate that arrives after the buyer has already remitted does not pull the money back from the CRA; the return does.
The notice for a completed sale of capital property is due within 10 days of the sale. If it was late or never sent, start with selling Canadian property as a non-resident, which covers the forms and the late-notice penalty.
Why is the certificate payment smaller than the holdback?
The certificate payment for capital property is 25% of the amount by which the sale price exceeds your adjusted cost base (your tax cost). The holdback is a percentage of the whole price (section 116(4)).
Selling costs such as commission and legal fees do not reduce the certificate payment. They can reduce the gain later on your return (IC72-17R6, para 41). The CRA can lower the payment when the principal residence exemption reduces the gain, if Form T2091(IND) or a letter with the calculation goes with the notice (IC72-17R6, para 73); how much the exemption covers after you left is in selling your home after leaving Canada.
Which return gets the excess back, and when can I file it?
The sale-year Canadian return does, whether the money reached the CRA from the buyer or as your certificate payment. The CRA treats that return as the final settlement of tax on the sale and refunds any overpayment with the notice of assessment (T4058; IC72-17R6, para 60). The return covers the whole calendar year of the sale, and the CRA processes it only after that year ends, even if filed earlier (para 60). A sold rental can need a second return: see the rental section below.
On the non-resident return, report the gain on line 12700 with Schedule 3, and attach copy 2 of the certificate if one was issued (Guide 5013-G). Only 50% of a capital gain is taxable. A former home also needs Form T2091(IND) to claim the exemption (CRA: principal residence).
The CRA lists a processing time for non-resident returns filed by the due date, longer if the return is reviewed; assessment can also show a balance owing. For the timing, payment methods and holds, see tax refund as a non-resident.
How do I make sure the buyer's remittance is credited to me?
The CRA credits section 116 payments by you or the buyer to your account (IC72-17R6, para 1). The buyer should send transaction particulars, say the payment is under section 116(5) or 116(5.3), and give both parties' full names and addresses (para 55).
The CRA matches section 116 payments to you by your SIN or individual tax number and to your return for the year (IC72-17R6, para 9). Ask the lawyer to confirm the number used on the remittance, and keep the remittance letter. On the non-resident return, enter the tax shown on your certificate on line 47600 and attach copy 2 of the certificate (Guide 5013-G, line 47600).
Is interest paid on the holdback while it is held?
Not by the CRA for the months before your return is due. Once your sale-year return is assessed and the excess is refunded, the CRA pays interest at its prescribed rate from the latest of 30 days after your balance-due day for that year, 30 days after you file the return, or the day the overpayment arose (Income Tax Act, section 164(3)). The section 116 circular mentions interest only as a charge on late notices and late remittances (IC72-17R6, para 12 and 56). Whether interest earned in the lawyer's trust account goes to you is set by the closing terms; ask the lawyer.
Rental property: why was the building held back at a higher rate?
A rental building is depreciable property, so the buyer's exposure on the building price is 50%, while the land stays at 25% (section 116(5.3)). The price split between land and building drives the holdback. A separate CRA certificate for the building lowers that exposure; the certificate for the land does not cover it (section 116(5.2) and (5.3); IC72-17R6, para 48 and 51).
Recapture changes the refund. Capital cost allowance (tax depreciation) you claimed in past years comes back into income when the building sells for more than its remaining tax cost, and recapture is fully taxable, not half. For the certificate, the CRA charges 25% of the gain on land and building plus the federal individual rate on recapture (IC72-17R6, para 43). If you claimed that allowance on section 216 returns, the recapture goes on a section 216 return for the sale year, due by your filing-due date for that year (April 30 of the year after the sale for most individuals), not the two-year window of an ordinary section 216 return, and separate from the return that reports the capital gain (Income Tax Act, section 216(5); T4144; non-resident landlords). Rent that was never reported before the sale is a separate problem: see non-resident landlord who never withheld.
Sold with a spouse: one holdback or two?
Each non-resident owner is a separate seller and must file a separate notice showing their interest in the property (IC72-17R6, para 10). Each then reports their own share of the gain, and claims the tax paid for their share, on their own return. The buyer's liability applies to what is bought from a non-resident (section 116(5)), so where one co-owner is still a Canadian resident, it may be limited to the other owner's share. Ask the lawyer to show how the holdback was split and whose name each remittance carries.
Example
Illustrative figures in Canadian dollars.
Certificate arrives while the money is in trust
A non-resident sells a condo for C$600,000. Cost was C$450,000. With no certificate at closing, the buyer's lawyer holds back C$150,000 (25% of the price). The seller files the completed-sale notice, and the lawyer pays C$37,500 from trust, which is 25% of the C$150,000 gain. Once the T2068 issues, the lawyer can release the remaining C$112,500 under the closing terms. The C$37,500 is credited on the sale-year return.
Buyer already remitted to the CRA
Same sale, but the lawyer remitted the C$150,000 before any certificate. The seller files the sale-year non-resident return after the year ends. Half of the C$150,000 gain, C$75,000, is taxable, and the tax on it is far below C$150,000. With no Canadian business, a non-resident pays federal tax plus a 48% surtax instead of provincial tax. The CRA refunds the excess when it assesses the return.
Former home that was rented
A former home sells for C$800,000: C$300,000 for land and C$500,000 for the building. The holdback is C$75,000 on the land (25%) plus C$250,000 on the building (50%), C$325,000 in all. Its tax cost when it became a rental (the value on that day, unless the owner elected to treat the home as unchanged) was C$200,000 for the land and C$350,000 for the building, and the owner had claimed C$60,000 of capital cost allowance since then. That C$60,000 is recaptured and fully taxable, while only half of the C$100,000 land gain and the C$150,000 building gain is taxable. The return, not the holdback, sets the refund.
Different for you?
- The notice was late, never sent, or the property is in Quebec: see selling Canadian property as a non-resident.
- The home was your principal residence for some years: the exemption math, including the deemed sale when the home became a rental, is in selling your home after leaving Canada.
- The property was rented, co-owned, or the lawyer will not release the money: the certificate, the land and building split and the return need to agree. Get individual tax help.
- You have not filed Canadian returns since leaving: see non-resident returns and catch-up and individual tax help.
- Rent was withheld or never withheld before the sale: see non-resident landlords.
- Other withheld tax to recover: see tax refund as a non-resident.
- You now live in the US: the US also taxes the sale. See selling your Canadian home after moving to the US.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Federal buyer holdback without a certificate for capital property Applied to the amount by which the purchase price exceeds any certificate limit, for property subject to subsection 116(5) | 25% | Income Tax Act, subsection 116(5) Checked |
| Federal buyer holdback without a certificate for depreciable property Applied to the amount by which the purchase price exceeds any certificate limit, for property subject to subsection 116(5.3) | 50% | CRA: Section 116 procedures, paragraph 51 Checked |
| Federal buyer holdback without a certificate for non-capital real estate Applied to the amount by which the purchase price exceeds any certificate limit, for real estate subject to subsection 116(5.2) | 50% | Income Tax Act, subsection 116(5.3) Checked |
| Federal certificate payment on a capital property gain Applied to proceeds minus adjusted cost base, before selling expenses; acceptable security may be provided instead | 25% | Income Tax Act, subsections 116(2) and 116(4) Checked |
| Section 116 notice after disposition After disposition of taxable Canadian property subject to subsection 116(3), unless valid advance notice was given | 10 days | Income Tax Act: subsection 116(3) Checked |
| General taxable capital gain inclusion rate General rule under Income Tax Act section 38(a); exceptions apply | 50% | Justice Laws: Income Tax Act, section 38 Checked |
| Federal surtax on an individual's income not earned in a province, share of federal tax 48% of federal tax, multiplied by the share of the individual's income not earned in a province (for example a deemed resident living abroad); Income Tax Act s. 120(1) | 48% | Income Tax Act, section 120 Checked |
Primary sources
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.