Key takeaways
- Section 116 applies when a non-resident sells “taxable Canadian property”, which includes Canadian real estate
- Tell the CRA on Form T2062 up to 30 days before the sale, or no later than 10 days after it
- Without a certificate, the buyer is liable for 25% of the price (50% for rental buildings and other depreciable property)
- To get the certificate you usually pay 25% of the gain, not of the price
- The principal residence exemption only covers years you were a resident of Canada
Who this guide is for
Who this page is for: people who have left Canada, or will leave before closing, and own a home, condo, cottage or rental property in Canada. If you sell and close while you are still a Canadian resident, section 116 does not apply, and the normal principal residence rules do.
Not sure whether to sell or keep the property? Start with keep or sell your home when leaving Canada.
What is section 116?
Section 116 of the Income Tax Act makes sure non-residents pay Canadian tax on gains from Canadian property. Canadian real estate is “taxable Canadian property”. It is not taxed when you leave (no departure tax), but it is taxed when you sell.
The law puts the risk on the buyer. If the seller is a non-resident and the CRA has not issued a certificate of compliance, the buyer can be liable for tax. So the buyer’s lawyer will hold back part of the sale price until you get the certificate. In practice, the holdback sits in the lawyer’s trust account.
Step by step: getting a clearance certificate
- Tell the CRA. File Form T2062 (or T2062A for rental buildings and other depreciable property, inventory, or resource property). You can file up to 30 days before the sale, and must file no later than 10 days after the sale closes.
- Pay or secure the tax. For capital property, the CRA asks for a payment (or acceptable security) of 25% of the gain: the sale price minus your adjusted cost base. For depreciable property, the amount is based on tax rates applied to the income part.
- Get the certificate. The CRA issues Form T2064 (for a completed sale) or T2068 (for a proposed sale, with a “certificate limit”). Send it to the buyer’s lawyer.
- Release of holdback. Once the buyer’s lawyer has the certificate, they release the holdback to you.
- File a Canadian return. Report the sale on a non-resident tax return for the year. Your final tax may be more or less than what you paid for the certificate; the difference is refunded or owed.
If you do not notify the CRA, the penalty is $25 a day, at least $100 and at most $2,500.
How much the buyer holds back
| Type of property | Buyer liable for, with no certificate | Buyer remits by |
|---|---|---|
| Capital property (for example a former home not used to earn rent) | 25% of the cost to the buyer (or of the amount above the certificate limit) | 30 days after the end of the month of purchase |
| Depreciable property, such as a rental building, and other property under subsection 116(5.2) | 50% of the price (or of the amount above the certificate limit) | 30 days after the end of the month of purchase |
A rental property often has both: the land is capital property and the building is depreciable. Lawyers often hold back an amount based on the whole price until the certificate arrives. Estimate the holdback with the section 116 withholding calculator.
The principal residence exemption when you are non-resident
The principal residence exemption (PRE) can still reduce your gain, but only for years you were a resident. The CRA formula gives you “1 plus” the number of years you designate the home as your principal residence, and you can only designate years in which you were resident in Canada.
Example: you bought a condo in 2016 and lived there until you left in 2022. You sell in 2026. You owned it in 11 tax years (2016 to 2026). You can designate 2016 to 2022 (7 years). Exempt part = (1 + 7) ÷ 11 = 8/11 of the gain. The other 3/11 is a taxable capital gain, half of which is taxed.
Send Form T2091(IND) (or a signed letter with the calculation) with your T2062 so the CRA uses the exemption when setting the certificate amount.
Worked example
Ahmed moved to the UAE in 2023. In 2026 he sells his Mississauga townhouse for $900,000. He paid $600,000 in 2018 and lived in it until he left Canada in December 2023. Years owned: 2018 to 2026 = 9. Years designated: 2018 to 2023 = 6.
- Gain: $300,000.
- Exempt part: (1 + 6) ÷ 9 = 7/9, or about $233,333.
- Gain left: about $66,667.
- CRA payment for the certificate: 25% of the gain left, about $16,667.
- Without a certificate, the buyer’s lawyer could hold back 25% of $900,000 = $225,000.
Ahmed then files a Canadian return for 2026. Half of the $66,667 gain is taxable at normal rates, so his final tax may be less than $16,667, and he can get a refund.
A typical timeline
- Before listing: gather your purchase documents, renovation receipts and the dates you lived in the home. Work out your principal residence years.
- After you accept an offer: file Form T2062 (and T2091 if you claim the exemption) with the CRA, ideally at least 30 days before closing.
- At closing: the buyer’s lawyer holds back the required amount in trust. You receive the rest.
- Within 10 days after closing: make sure the CRA has your notice, or file it now if you did not file earlier.
- When the CRA reviews: pay the amount it asks for (usually 25% of the gain), then receive Form T2064 or T2068.
- After the certificate: the lawyer releases the holdback. You file your Canadian non-resident return for the year by April 30 of the next year.
Practical tips
- Hire a real estate lawyer who handles non-resident sales, and start the T2062 early. CRA processing can take weeks or months.
- Keep proof of your purchase price and major renovations: they increase your adjusted cost base.
- If you rented the property after you left, you also need your section 216 returns up to date. See the non-resident withholding tax calculator.
- Your new country may also tax the gain. A treaty usually lets Canada tax real estate first, and your new country gives a credit.
- Moving the sale money abroad? Compare banks and transfer services first; see compare money transfer options.