How does a section 116 clearance certificate work when a non resident sells property?
A section 116 certificate is the CRA's certificate of compliance for a non resident who sells taxable Canadian property. Your client files Form T2062 before closing or within 10 days after and pays 25% of the gain. Without a certificate, the purchaser is liable for 25% of the price, or 50% for depreciable property like a rental building.
Which form and which rate apply to which property?
A section 116 certificate is the certificate of compliance the CRA issues to a non resident vendor of taxable Canadian property once it has a payment or acceptable security for the tax on the gain. Your client asks for it on Form T2062, T2062A or T2062B, canada.ca, and a copy of the certificate goes to the purchaser
canada.ca. The CRA issues Form T2064 for a proposed sale and Form T2068 for a sale that has already happened
canada.ca.
| Property sold | Seller's form | Seller pays for the certificate | Purchaser liable without one |
|---|---|---|---|
| Capital property: a cottage, vacant land, private company shares | T2062 | 25% of proceeds minus ACB | 25% of the cost, s.116(5) |
| Depreciable property: a rental building | T2062 and T2062A | 25% of the gain on land and building, plus tax at the applicable rate on recapture | 50% of the cost, s.116(5.3) |
| Real property held as inventory, resource or timber property | T2062A | An amount based on the individual, trust or corporate rate | 50% of the cost, s.116(5.3) |
| Life insurance policy in Canada | T2062B, filed by the insurer | An amount acceptable to the CRA | 50%, and the insurer is the one liable |
| Excluded property: listed shares, mutual fund units, bonds, treaty exempt property | None | Nothing | Nothing |
The rates come from IC72-17R6, the CRA's procedures circular for section 116 canada.ca. The 25% is a flat rate on proceeds minus adjusted cost base, and the CRA doesn't deduct selling costs such as commissions or legal fees when it calculates it. The real tax gets settled later on the return. For how to build the ACB, see the adjusted cost base page.
Worked example: a cottage sold by a US resident
Your client lives in the United States and sells an Ontario cottage she used personally. The sale price is $800,000, her ACB is $500,000, and commissions and legal fees come to $40,000. The deal closes on June 15, 2026.
| Step | Amount |
|---|---|
| Proceeds minus ACB ($800,000 minus $500,000) | $300,000 |
| Payment on account for the certificate (25% of $300,000) | $75,000 |
| Commissions and legal fees deducted in that calculation | $0 |
| Purchaser liability if no certificate is issued (25% of $800,000) | $200,000 |
| Purchaser remittance deadline (30 days after the end of June) | July 30, 2026 |
| Purchaser liability once the certificate limit covers the $800,000 price | $0 |
The gap is the whole point. Your client's payment is based on the gain, while the purchaser's exposure is based on the price, so the purchaser has every reason to hold back $200,000 at closing until the certificate arrives. The purchaser is entitled to withhold that tax from any amount paid to the seller laws-lois.justice.gc.ca.
The $75,000 is an interim payment, not the final tax. Your client files a Canadian return for 2026 reporting the gain, and the return is the final settlement canada.ca. Copy 2 of the certificate must be attached, and an individual's return is due April 30 of the year after the sale
canada.ca. Any overpayment is refunded after the return is assessed
canada.ca.
What the purchaser owes when there is no certificate
Under s.116(5), a purchaser who buys taxable Canadian property (other than depreciable or excluded property) from a non resident is liable for 25% of the amount by which its cost exceeds the certificate limit, and has to remit it to the Receiver General within 30 days after the end of the month of the purchase. Under s.116(5.3), the rate is 50% for depreciable taxable Canadian property, real property that isn't capital property, resource and timber property, and life insurance policies laws-lois.justice.gc.ca.
A rental property splits across both rules. Say a non resident sells a rental house for $1,000,000, with $300,000 allocated to the land and $700,000 to the building, and no certificate exists at closing.
| Portion | Cost | Rule | Purchaser liability |
|---|---|---|---|
| Land (capital property) | $300,000 | 25%, s.116(5) | $75,000 |
| Building (depreciable property) | $700,000 | 50%, s.116(5.3) | $350,000 |
| Total | $1,000,000 | $425,000 |
The only defence is reasonable inquiry: the purchaser has no liability if, after reasonable inquiry, it had no reason to believe the seller wasn't resident in Canada laws-lois.justice.gc.ca. The CRA expects prudent steps to confirm residence and won't make the inquiry for the purchaser. There is no time limit on assessing a purchaser, and a late remittance draws a penalty of 3%, 5%, 7% or 10% depending on how late it is, plus interest
canada.ca. Residence questions are covered on the tax residency page.
Deadlines, delivery and the late notice penalty
For a proposed sale, your client can send the notice at any time before the sale laws-lois.justice.gc.ca, though the CRA asks for it at least 30 days ahead. If there was no advance notice, or the deal changed from what was proposed, the notice of the actual sale is due within 10 days after it
canada.ca. For real property, the sale normally happens when the deed is delivered, usually at closing.
File the form through My Account, Represent a Client or My Business Account with Submit documents, or mail it to the Centre of Expertise for the region where the property is located. Missing documents delay the certificate canada.ca. The current Form T2062 is on the CRA forms page
canada.ca.
A late notice costs $25 a day, with a minimum of $100 and a maximum of $2,500, under s.162(7). Your client can ask for it to be cancelled under s.220(3.1) if the delay came from circumstances beyond their control, by writing to the tax services office that issued the certificate canada.ca.
| Deadline | Who | Rule |
|---|---|---|
| Before the sale (CRA asks for 30 days ahead) | Seller | Notice of a proposed sale |
| 10 days after the sale | Seller | Notice of the actual sale, s.116(3) |
| 30 days after the purchase | Purchaser | T2062C for treaty protected property |
| 30 days after the end of the month of purchase | Purchaser | Remit 25% or 50% if there's no certificate |
| April 30 of the next year | Individual seller | Canadian return with Copy 2 attached |
| Six months after year end | Corporate seller | T2 return |
| 90 days after year end | Trust seller | T3 return |
Edge cases: excluded property, treaty protection and the UHT
Excluded property needs no certificate and leaves the purchaser with no liability. Section 116(6) lists it: listed shares, mutual fund trust units, bonds, debentures, mortgages and similar debt, inventory of a business carried on in Canada (other than real, resource or timber property), and treaty exempt property laws-lois.justice.gc.ca.
Private company shares catch people. Shares not listed on a designated stock exchange are taxable Canadian property if, at any time in the previous 60 months, more than 50% of their fair market value came from Canadian real property, resource or timber property canada.ca. A holding company that owns a Canadian building can put your client inside section 116 even though nothing on the share certificate looks like real estate.
Treaty protected property is the purchaser's own filing. When the seller and purchaser are related, the purchaser must file Form T2062C within 30 days after the purchase, and a late T2062C isn't accepted. When they aren't related it's optional, but filing it within 30 days can reduce the purchaser's risk canada.ca. The form is on the CRA's T2062C page
canada.ca.
Under s.116(8), the CRA may decline to issue a certificate for residential property if the seller hasn't filed every Underused Housing Tax return or paid every UHT amount owing laws-lois.justice.gc.ca. As of October 2026, no UHT is due for 2025 or later, but returns for 2022 to 2024 are still required, as covered on the UHT page. Clear any old UHT filings before you send the T2062.
Sources
Does my client still file a Canadian return after getting the certificate?
Usually, yes. The payment for the certificate is an interim payment and the return is the final settlement canada.ca. A return is not required only when four conditions are all met, including that your client owes no Part I tax and disposed only of excluded property or property covered by a certificate
canada.ca. The mechanics are on the non resident return page.
Can the purchaser release the holdback once the certificate arrives?
Yes, once the certificate covers the price. The purchaser's liability is 25% (or 50%) of the amount by which the price exceeds the certificate limit or fixed amount, so a certificate covering the full price takes the liability to zero laws-lois.justice.gc.ca. If the certificate covers less than the price, the purchaser still owes the rate on the difference.
Is a rental building on T2062 or T2062A?
Both. Depreciable property can need T2062 for the capital gain and T2062A for the recapture, and the CRA sets the payment at 25% of the gain on the land and building plus the applicable tax rate on the recapture canada.ca. Recapture itself is explained on the recapture and terminal loss page.
Does my client need a SIN to file?
No. A non resident who isn't eligible for a SIN applies for an individual tax number on Form T1261 canada.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.