Selling Canadian Property as a Non-Resident: Section 116, the T2062, and the 25% Holdback

Most non-residents selling Canadian property owned it as a rental first. That rental phase has its own withholding regime, entirely separate from the sale — worth a quick recap so you don't confuse the two 25% numbers:

• Part XIII withholding on rent. While you rented the property, a flat 25% of the gross rent was withheld and remitted to the CRA under Part XIII.
• NR6 to withhold on net instead. By filing an NR6 before the year began, you could reduce that to 25% of net rent (rent minus expenses).
• NR4 slip. The rent and tax withheld were reported to you each year on an NR4 slip.
• Section 216 to be taxed on net. Filing a Section 216 return let you be taxed on net rental income at graduated rates and recover over-withholding.

That is the income from the property. This guide is about the disposition of the property — the sale — which triggers a completely separate obligation under Section 116. Same 25% figure, different tax, different form, different certificate. From here on we focus on the sale.

Section 116 of the Income Tax Act is the CRA's security mechanism for collecting tax from a seller who lives outside the country. When a non-resident disposes of taxable Canadian property (which includes Canadian real estate), the law puts the collection burden on the buyer: the buyer must withhold 25% of the gross sale price and remit it to the CRA — unless the seller produces a Certificate of Compliance.

The logic is straightforward. Once the sale closes and the money leaves the country, the CRA has little practical ability to chase a seller in another jurisdiction for tax owing on the gain. So it requires the buyer to hold back a large deposit up front. The buyer has a real stake in this: if they fail to withhold when required, theycan be held liable for the tax the seller should have paid. That is why buyers' lawyers insist on either the certificate or the holdback before releasing funds.

This is the Canadian mirror of the US FIRPTA rules. FIRPTA (the Foreign Investment in Real Property Tax Act) is the reverse case — it requires a buyer to withhold when a foreign person sells US property. Same underlying idea, opposite direction of the border. If you want to see the US side of the machinery, the FIRPTA calculator models it.

The key thing to internalize before you go further: 25% of the gross price is enormous. On a $600,000 sale that is $150,000 frozen — regardless of whether your actual gain was $600,000 or $60,000. The certificate is what shrinks that number down to something proportional to your real profit.

The Certificate of Compliance is what turns a 25%-of-the-whole- price holdback into a 25%-of-the-gain holdback. It is the single most valuable step in the entire sale.

You obtain it by filing Form T2062, Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property. On the T2062 you report the sale and pay — or provide acceptable security for — an amount equal to 25% of the estimated capital gain (not 25% of the gross price). The CRA reviews it and issues the Certificate of Compliance.

Once the certificate is issued, the buyer's required holdback drops from 25% of the gross price to roughly 25% of the gain. The difference between those two numbers is money that stays with you at closing instead of sitting with the CRA for months.

Work a simple example. Suppose you bought a Canadian rental for $400,000 and sell it for $600,000:

• Without a certificate: the buyer withholds 25% × $600,000 = $150,000.
• With a certificate (T2062): the gain is roughly $200,000, so the holdback is about 25% × $200,000 = $50,000.

That is $100,000 that stays in your pocket at closing rather than being frozen with the CRA until you file and get a refund. The exact figure depends on your adjusted cost base and selling costs — the Section 116 calculator does this math for your specific numbers.

You must notify the CRA of the disposition within 10 days of it happening. That is the statutory deadline. But treating it as a “file within 10 days” task badly misreads how this process works in practice.

Certificates take weeks to issue. The CRA does not turn a T2062 around overnight — the review can run well beyond the closing date. So the smart sequence is to start the T2062 before or right around closing, not to wait until day 10 after. Filing early is far better: it gives the CRA time to issue the certificate closer to (or even before) closing, which means less money frozen for less time, and a smoother closing for everyone at the table.

Missing the 10-day notification deadline carries a penalty of up to $2,500 (federal). It is a per-disposition penalty for late notification — easily avoided, and pure waste if incurred. The takeaway is blunt: the moment a sale of Canadian property by a non-resident is on the table, the T2062 clock is the first thing to put in motion.

Practically, coordinate the T2062 with your lawyer or notary as part of the closing. Because the buyer's holdback and remittance obligations hinge on whether the certificate exists, this is not a “deal with it after closing” item — it is part of the closing itself.

Whether the buyer holds back 25% of the gross price or 25% of the gain, that amount is a deposit against your eventual tax — not the tax itself. The actual Canadian tax on the sale is calculated on your taxable capital gain, and it is almost always less than the holdback.

Here is how the real tax is figured:

• Capital gain = proceeds − adjusted cost base (ACB). Your ACB is the original purchase price plus capital improvements plus acquisition costs. Selling costs (legal fees, commissions) also reduce the gain.
• Taxable capital gain = 50% of the gain. Only half of a capital gain is taxable in Canada — the 50% inclusion rate.
• Tax applies at non-resident graduated rates on that taxable half, settled when you file a Canadian income tax return for the year of the sale.

Because the 25% holdback is measured against the full gain while the tax is measured against the taxable half of the gain at graduated rates, the holdback is typically more than the final tax. When you file your return for the year of sale, the CRA reconciles the two and refunds any over-holdback. The deposit gets you to the finish line; the return is where the real number is settled.

So the full lifecycle is: (1) file the T2062 to size the holdback to the gain rather than the price; (2) close, with the reduced amount held; (3) file your Canadian return for the year, compute tax on the taxable capital gain at graduated rates, and receive a refund of the difference. Keep clean records of your ACB — purchase price, improvements, and costs — because they directly reduce both the holdback and the final tax.

If the property is in Quebec, everything above still applies — and a second, parallel layer stacks on top of it. Quebec administers its own tax, so a non-resident sale of Quebec real estate triggers both the federal Section 116 process and a Revenu Québec equivalent.

• An additional 12.875% is withheld for Revenu Québec on top of the 25% federal withholding. The buyer — typically acting through the notary who handles Quebec real estate closings — withholds both.
• You file Form TP-1097-V alongside the T2062. The TP-1097-V is the Quebec counterpart to the federal T2062, filed with Revenu Québec to obtain the Quebec certificate.
• Two certificates, two authorities. You are clearing both the CRA (federal, T2062) and Revenu Québec (Quebec, TP-1097-V) — each issues its own certificate.
• A separate Quebec penalty of up to $2,500 applies for the Quebec side of a late filing, in addition to the federal penalty.

The practical implication for a Quebec sale: budget for a combined federal-plus-Quebec holdback, file both the T2062 and the TP-1097-V early, and coordinate closely with the notary, who is central to Quebec closings and to the withholding mechanics.

If you are a US person selling Canadian property, the same gain is reportable on both sides of the border — but it is not taxed twice. A US-person seller reports the Canadian-source capital gain on their US return and then claims a foreign tax credit for the Canadian tax paid on that gain.

The mechanism is Form 1116, the US foreign tax credit form. The Canadian tax you pay on the gain (settled through the Section 116 process and your Canadian return) becomes a credit against the US tax on the same gain. The credit is what prevents the same dollars of gain from being taxed in full by both countries.

It helps to keep the two directions straight:

• Section 116 — a non-resident (e.g. a US person) selling Canadian property. Canada withholds; the T2062 gets the certificate.
• FIRPTA — the reverse: a foreign person selling US property. The US withholds. This is the mirror-image case, modeled by the FIRPTA calculator.

The order of operations matters for the credit: you generally settle the Canadian tax first (that is the source-country tax on Canadian-situated real estate), then claim it against your US tax via Form 1116. Because the timing of a Section 116 certificate, a Canadian return, and a US return can span more than one filing period, cross-border sales of this kind reward careful sequencing — and are a good moment to involve a cross-border tax professional.

The whole Section 116 sale, compressed:

• Default rule. A non-resident disposing of taxable Canadian property triggers a buyer holdback of 25% of the gross sale price, remitted to the CRA.
• The fix — Certificate of Compliance. File Form T2062, pay or secure 25% of the estimated gain, and the holdback drops to roughly 25% of the gain.
• Deadline. Notify the CRA within 10 days of the disposition — but file earlier, because certificates take weeks. Late: penalty up to $2,500 (federal).
• The holdback is a deposit. Real tax = 50% of the gain (the inclusion rate) at non-resident graduated rates, settled on your Canadian return for the year of sale. Over-holdback is refunded.
• Quebec. Add 12.875% withheld for Revenu Québec and Form TP-1097-V alongside the T2062 — two certificates, separate penalty up to $2,500.
• US side. A US-person seller reports the same gain in the US and claims a foreign tax credit (Form 1116) for the Canadian tax — no double tax. FIRPTA is the reverse case.

Calculators and references for a non-resident sale:

• Section 116 calculator — model the 25%-of-gross vs. 25%-of-gain holdback for your numbers
• FIRPTA calculator — the mirror-image US withholding when a foreign person sells US property
• Cross-border landlord tax glossary — Section 116, T2062, Part XIII, NR4, NR6, Section 216, and more, defined

BorderBird tracks Canadian rental income, expenses, and non-resident withholding in one ledger — and keeps the records you need for the eventual sale, including the adjusted cost base (purchase price, capital improvements, and costs) that sizes your Section 116 gain. Try it free — one property, no time limit, no credit card.

Related reading:

• FIRPTA Withholding: Guide for Canadian Sellers of US Property
• NR4 Form: Complete Guide for Non-Resident Landlords
• Section 216 Election: Complete Guide
• NR6 Application for Non-Resident Landlords