I am a seller living outside of Canada. Does my lawyer have to hold back funds for taxes?

If the seller is not a resident of Canada, the CRA requires the seller’s lawyer to hold back at least 25% of the sale proceeds on closing while the seller applies for a Certificate of Compliance. The 25% is held as a security, to ensure that the seller cannot avoid the tax liability by receiving the entirety of the sale proceeds and disappearing.

If the seller can obtain a Tax Clearance Certificate before the completion of the sale, the tax owed will simply be deducted from the sale proceeds and remitted directly to the CRA by the seller’s lawyer. If the seller is unable to obtain a Tax Clearance Certificate before the completion of the sale transaction, the CRA requires the buyer to withhold 25% of the gross purchase price or 50% where the real estate is a depreciable property (i.e. a building used for rental or business purposes), which the seller’s lawyer shall hold in trust on behalf of the CRA, until the seller receives the Tax Clearance Certificate.

An individual is considered to be a “non-resident” of Canada for income tax purposes in the following circumstances:

• They normally, customarily, or routinely live in another country and are not considered a resident of Canada;

• They do not have significant residential ties in Canada and if any of the following applies:

  • they live outside Canada throughout the tax year; or

  • they stay in Canada for less than 183 days in the tax year.