Sale of Canadian Properties for Americans

Non Resident Income tax on Sale of Canadian Property

Selling Canadian Property? Not certain which forms need filing? or which agency must be informed and when? or if witholding taxes apply? Aylett Grant tax specialists will ease your concerns and help with filing the appropriate forms and documents on time

Sale of Canadian property and non-resident tax

  • If you are disposing of real property situated in Canada, you are subject to a non-resident withholding tax of 25% of the gross sales price. If, however, the real property is depreciable property (e.g. property that earned rental income), then the required withholding would be 50% of the gross sales price.

Reducing Withholding  Tax

  • You may request to have the non-resident tax withheld on the net capital gain on the disposition instead of the gross sales price This requires filing the appropriate forms with the CRA and also obtaining a Certificate of Compliance.
  • If disposing of real property that you have been renting, you must have filed your Section 216 returns reporting the rental income and expenses up to the date of disposition, and paid all of the tax due.  CRA will issue the clearance certificate only after all your Canadian taxes have been paid, including any taxes on rental revenue.

Requirement to Notify CRA

  • Even if you choose not to obtain a clearance certificate in advance of the sale in order to reduce your tax withholding, you are still required to notify the CRA within ten days of the disposition of the property.  If you fail to notify the CRA within the ten-day period, you will be assessed a penalty of $25 a day for each day the notification is late, with a minimum of $100 and a maximum of $2,500.

Canadian tax return required

  • You are required to file a Canadian tax return for the taxation year in which the disposition took place.  You will be able to deduct the adjusted cost basis of the property and receive credit for your expenses of sale, which could result in a refund of a portion of the tax withheld.

*The information described above is general in nature and does not constitute professional advice. We recommend that you obtain the appropriate accounting, legal or other professional advice before acting on any of the information contained herein.

Aylett Grant Tax LLP can help you:

  • File any necessary rental returns to bring you current with the CRA
  • Prepare and file the Form T2062 to report the sale of the property and to reduce the non-resident tax withholding
  • Prepare the required Canadian tax return on your behalf to report the sale of the property