Key takeaways
- Without a CRA certificate of compliance, the buyer can hold back 25% of the full price
- With a certificate, you pay 25% of your gain (price minus cost) to the CRA instead
- The principal residence exemption only counts years you lived in Canada, plus one year if you were a resident when you bought
- You must tell the CRA within 10 days after the sale, or pay a penalty of up to $2,500
- Selling before you become a non-resident avoids section 116 completely
What is section 116 withholding?
Section 116 of the Income Tax Act applies when a non-resident of Canada sells "taxable Canadian property", which includes a home in Canada. It makes sure the CRA can collect any tax on the gain before the money leaves the country.
The rule works through the buyer. If you do not give the buyer a certificate of compliance from the CRA, the buyer becomes liable for tax equal to 25% of the price they paid. So the buyer’s lawyer holds back 25% of the price (a "holdback") until the certificate arrives. For depreciable property, such as a building you rented out and claimed capital cost allowance (CCA) on, the rate on that part is 50%.
To get the certificate, you send Form T2062 to the CRA and pay 25% of your gain, meaning the sale price minus your adjusted cost base (ACB). This is a payment on account, not your final tax. You settle the real tax on a non-resident return for the year of sale.
Deadlines and penalties
- Send Form T2062 to the CRA no later than 10 days after the sale closes. You can also send it before the sale.
- If you are late, the penalty is $25 a day, at least $100 and at most $2,500.
- The buyer must send the tax to the CRA within 30 days after the end of the month of purchase, unless the certificate has arrived by then.
The CRA can take months to issue a certificate, so many sales close with the holdback in a lawyer’s trust account. Start the T2062 early.
How the principal residence exemption shrinks after you leave
The principal residence exemption makes the gain on your home tax-free, but only for years you lived in it and were resident in Canada. The formula in Income Tax Folio S1-F3-C2 is:
Exempt gain = gain × B ÷ C
- C is the number of tax years you owned the home, counting the year you bought and the year you sold.
- B is the number of those years you designate as your principal residence while you were resident in Canada, plus one if you were resident in the year you bought it.
Each year you own the home as a non-resident adds to C but not to B. So the tax-free share falls every year you wait to sell.
Worked example
Priya bought a condo in 2016 for $500,000 and lived in it. She moved to the UK in 2023 and sells for $900,000 in 2026.
- Gain: $900,000 − $500,000 = $400,000
- C (2016 to 2026): 11 years
- B: 8 resident years (2016 to 2023) + 1 = 9
- Exempt: $400,000 × 9 ÷ 11 = $327,273
- Gain left: $72,727, so the certificate payment is about $18,182 if the CRA accepts her exemption claim (Form T2091)
- Without a certificate, the buyer would hold back $225,000 (25% of $900,000)
Only half of a capital gain is taxable. The tax she finally owes depends on her non-resident return, and the UK may tax the gain too. See foreign tax credits.
How this calculator counts
The calculator uses the price minus your cost for the certificate payment, as IC72-17R6 describes. It then applies the exemption formula above and shows the payment with and without the exemption. It assumes you owned the home alone and did not claim CCA. Selling costs reduce the taxable gain on your final return but are not part of the 25% payment.
If you have not left yet, compare your options in keep or sell your home. For the full process, read selling a home under section 116.
This tool gives an estimate for planning. It is not tax advice. Rules for non-residents are complex, so have a cross-border accountant check your numbers before you sign a sale or leave Canada.