As a non-resident of Canada disposing of a rental property, you will need to advise the Canada Revenue Agency (CRA) of the sale by completing Form T2062, Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property, no later than 10 days after the property is sold. Additional documents will also need to be forwarded to CRA along with Form T2062, including your original purchase and sales agreements.
Without an approved Certificate of Compliance from CRA (from start to finish takes on average 8-12 weeks), the lawyer settling your sale (your lawyer) is required to withhold between 25-50% of the GROSS PROCEEDS (sales price) until the Certificate is issued and received. For many sellers, this tax withholding can create a number of issues (settling a mortgage, cash for down payment of another property to name a few).
With the Certificate of Compliance, your real estate lawyer will be required to withhold non-resident tax of 25 percent of the net gain on the sale.
The tax is withholding tax only, NOT a final tax. You may be entitled to a refund when you file the annual Canadian tax return reporting the sale of the property.
Finally, you will be required to file a T1 tax return by April 30 of the year following the sale, disclosing the gross proceeds, the original purchase amount and additional outlays or expenses related to the sale. You will also need to include Copy 2 of Form T2068 with your tax return.
Generally, we recommend our clients contact us when they are considering listing their Canadian property so they can plan accordingly and begin collecting the documents required for a submission as mentioned above.
Note that similar provisions apply in Quebec and the process must be repeated on sale of property located in the Province of Quebec.