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Income Tax Act and Taxation Act concerning the sale of an immovable by a non-resident of Canada

Anyone who sells an income property or vacant land is likely to realize a capital gain. If they are not a Canadian resident*, they normally do not file their income tax returns in Canada, but rather in their place of residence.

In order to compel this non-resident to pay the tax that would otherwise be payable on the capital gain, the tax laws contain provisions requiring the non-resident to obtain a certificate from the provincial and federal Revenue departments authorizing him to sell and to withhold a certain sum of money representing the tax payable for the year of disposal of the property.

If the non-resident seller has obtained the certificates from the Revenue departments, the amount of the holdback will appear on both certificates.

* Non-resident of Canada for tax purposes:

  • Lives in another country on a regular, normal or customary basis and is not considered a resident of Canada;
  • Has no residential ties to Canada and is in one of the following situations:
    • lives outside Canada throughout the taxation year;
    • resides in Canada for less than 183 days in the taxation year.

Important to remember

  • A non-resident who disposes of a taxable property located in Canada must obtain a certificate of compliance issued by the federal tax authorities
  • If the immovable is located in Québec, he must also apply for a certificate from Revenu Québec.
  • The application must be made no later than ten days after the sale of the immovable.
  • However, at the time of sale, if the certificates have not been obtained, the notary will have to keep in his trust account an amount representing 25% of the proceeds of disposition (less the cost of acquisition) for the federal tax authorities;1 this amount is 12% for the Quebec tax authorities.2 The notary will not be able to remit these amounts, or the balance thereof, as the case may be, to the seller until the certificates are received.
  • These holdbacks could prevent the sale from taking place for lack of equity, for example if the property is encumbered by a mortgage.
  • Obtaining the certificates of compliance is essential for the buyer, who could be required to pay the above holdbacks to the federal and provincial governments, even if he has already paid the purchase price of the property in full.3
  • Since it is the buyer who becomes liable under the applicable tax legislation, the governments could register a legal hypothec against the property so purchased in order to recover the amounts owed by the seller. Penalties provided for in the tax laws could also be imposed on the buyer.

1 Income Tax Act, R.S.C. (1985), ch. 1 (5th Supp.), s. 116.
2 Taxation Act, CQLR, c. I-3, Part 9, s. 1097-1101.2.
3 Income Tax Act, R.S.C. (1985), ch. 1 (5th Supp.), s. 116(5); Taxation Act, CQLR, c. I-3, Part 9, s. 1101.



Because of the difficulty of determining whether a person is a resident or non-resident of Canada, the broker should not express an opinion on this matter. Instead, he should recommend that the client contact government authorities to obtain the relevant information and documents.

The broker must keep a copy of these documents in the client’s file and advise the notary of this fact.

In the event that the seller is not a Canadian resident within the meaning of the Income Tax Act and the Taxation Act, the broker must specify this in section 11.1 of the brokerage contract by referring to the pre-printed clause 8.1.3.

As provided for in the Civil Code of Québec – unless the parties agree otherwise – the sale of an immovable located in Québec is subject to the legal warranty of quality, even if the seller is a non-Canadian resident

However, the broker must advise the buyer that it may be difficult to take recourse against the non-resident seller. Indeed, legal recourse against someone who is not in Québec often results in complications and additional costs when it comes to enforcing a judgment rendered in Québec.

Consequently, even if the legal warranty of quality exists, the buyer must be informed that it could in fact be illusive.

With this in mind, the broker could advise the buyer to adjust his offering price accordingly.

If the certificates from the above-mentioned departments are not obtained, the buyer has the obligation to withhold these amounts. The notary will make the withholding. If no withholding is made, the buyer will be liable.

Consequently, when choosing a notary, the broker should recommend that his buying client ensure that the notary is familiar with the rules applicable to non-resident sellers. If not, it would be preferable for the buyer to retain the services of a professional with the required skills who can assist the notary.

Last updated on: May 18, 2022
Reference number: 208981