Guide to T2062 for Non-Resident Property Sales

What Is Form T2062?

Form T2062, officially titled "Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property," is a form that non-residents must file with the Canada Revenue Agency (CRA) when they sell or dispose of certain types of Canadian property. The form serves as a notification to the CRA and a request for a clearance certificate that releases the buyer from their withholding obligations.

Under Section 116 of the Income Tax Act, when a non-resident disposes of taxable Canadian property, the purchaser is required to withhold 25% of the gross purchase price (not just the gain) and remit it to the CRA. This withholding is intended to ensure that non-residents pay the appropriate Canadian tax on the disposition. However, if the non-resident seller obtains a Certificate of Compliance by filing Form T2062, the withholding is limited to 25% of the gain (the difference between the sale price and the adjusted cost base) rather than 25% of the entire sale price.

Who Needs to File T2062?

You need to file Form T2062 if you are a non-resident of Canada and you are selling or disposing of taxable Canadian property. Taxable Canadian property includes:

• Real property in Canada - Houses, condominiums, land, rental properties, and commercial buildings located in Canada.
• Canadian resource properties - Interests in oil, gas, or mineral properties in Canada.
• Timber resource properties - Rights to cut timber in Canada.
• Shares of certain Canadian corporations - If more than 50% of the share value is derived from Canadian real property, Canadian resource properties, or timber resource properties.
• Partnership interests - If more than 50% of the partnership's value is derived from taxable Canadian property.

The most common scenario is a non-resident selling Canadian real estate. This often occurs when a former Canadian resident who has moved abroad sells a property they still own in Canada, or when a foreign investor sells a Canadian investment property. Newcomers who may have recently become Canadian residents should understand that if they later leave Canada and become non-residents, these rules will apply to any Canadian property they sell after departure. Our newcomer tax guide provides background on residency and tax obligations.

The Withholding Requirement

The withholding requirement under Section 116 is a critical aspect of non-resident property dispositions. The buyer (or the buyer's lawyer) is legally responsible for withholding and remitting the tax. If the buyer fails to withhold and remit, they can be personally liable for the amount that should have been withheld, plus interest and penalties.

The withholding rates are:

• Without a Certificate of Compliance: The buyer must withhold 25% of the gross sale price.
• With a Certificate of Compliance: The buyer must withhold 25% of the gain (sale price minus the certified cost amount, which is typically the adjusted cost base).

For example, if a non-resident sells a property for $500,000 with an adjusted cost base of $300,000:

• Without the certificate: The buyer withholds $125,000 (25% of $500,000)
• With the certificate: The buyer withholds $50,000 (25% of the $200,000 gain)

The difference is significant, which is why filing Form T2062 promptly is so important.

Filing Deadline

Form T2062 must be filed within 10 days after the date of disposition. The date of disposition is generally the date the sale closes and the property transfers to the buyer. Late filing can result in penalties of $25 per day, up to a maximum of $2,500. More importantly, without a timely filing, the buyer may withhold the full 25% of the gross sale price, tying up a large amount of the seller's proceeds.

How to Complete Form T2062

Step 1: Determine Your Non-Resident Status

Confirm that you are a non-resident of Canada for tax purposes. The CRA considers factors such as where you live, where your family resides, your social and economic ties to Canada, and the purpose and permanence of your stays in Canada. If you are unsure of your status, you can request a residency determination from the CRA.

Step 2: Gather Required Information

You will need the following information to complete the form:

• Your name, address, and Canadian tax identification number (SIN or ITN)
• The purchaser's name and address
• A description of the property being sold
• The date of disposition
• The sale price (proceeds of disposition)
• The adjusted cost base (original purchase price plus improvements, adjusted for any previous capital cost allowance claimed)
• Any selling expenses (such as real estate commissions and legal fees)
• The estimated capital gain

Step 3: Calculate the Estimated Tax

Calculate the estimated capital gain on the property. The capital gain is the sale price minus the adjusted cost base and selling expenses. Under current rules, a portion of the capital gain is included in income. The tax on the gain depends on the non-resident's applicable tax rate, but for withholding purposes, the CRA requires 25% of the gain to be remitted.

If you have losses from other dispositions of taxable Canadian property in the same year, or capital loss carryforwards from prior years, you may be able to reduce the estimated gain. Include this information on the form.

Step 4: Submit the Form and Payment

File Form T2062 with the CRA along with payment of the estimated tax. You can submit the form electronically through the CRA's online submission portal or by mail to the appropriate tax services office. Include a cheque or arrange electronic payment for the estimated tax amount.

Step 5: Receive the Certificate of Compliance

After reviewing your submission, the CRA will issue a Certificate of Compliance (if everything is in order) or request additional information. The certificate is sent to both the vendor (non-resident seller) and the purchaser. Once the purchaser receives the certificate, they are released from the obligation to withhold tax (to the extent that the certified amount covers the gain).

Processing times vary, but the CRA aims to process T2062 applications within several weeks. For straightforward cases, the certificate may be issued in as little as two to four weeks. Complex cases can take longer.

Filing Your Canadian Tax Return

In addition to filing Form T2062, non-residents who sell taxable Canadian property must file a Canadian income tax return (T1 return) for the year of the sale. The return reports the capital gain and calculates the actual tax owing. The withholding amount paid through the T2062 process is applied as a credit against the tax calculated on the return.

If the actual tax is less than the amount withheld, you will receive a refund. If the actual tax is more, you will need to pay the difference. The tax return must be filed by the normal filing deadline (April 30 for individuals) for the year in which the property was sold.

Non-residents can also elect under Section 216 or Section 217 of the Income Tax Act for certain types of income. If you have been renting out the property and earning rental income, you may have been filing annual NR4 slips and Section 216 returns.

Common Complications

Principal Residence Exemption

Non-residents generally cannot claim the principal residence exemption for years in which they were not resident in Canada. However, if the property was your principal residence for some of the years you owned it (while you were a Canadian resident), you may be able to claim a partial exemption. This calculation can be complex and may benefit from professional advice.

Currency Conversion

If you purchased the property when you were a Canadian resident and the transactions were all in Canadian dollars, currency conversion is straightforward. However, if you are receiving proceeds in a foreign currency, the amounts must be converted to Canadian dollars using the exchange rate on the date of the transaction.

Tax Treaty Benefits

Canada has tax treaties with many countries that may affect the taxation of real property dispositions. In most treaties, Canada retains the right to tax gains on real property situated in Canada, so the treaty typically does not eliminate the tax. However, the treaty may provide relief from double taxation by allowing you to claim a foreign tax credit in your country of residence for Canadian taxes paid.

Penalties for Non-Compliance

Failing to file Form T2062 on time results in penalties:

• Late filing penalty: $25 per day, to a maximum of $2,500
• Buyer liability: If the buyer does not withhold and remit the required tax, they are personally liable for the amount, plus interest and penalties
• Interest: Interest accrues on any unpaid tax from the original due date

For the buyer, failing to withhold can be costly. Most real estate lawyers in Canada are aware of the Section 116 requirements and will ensure that the appropriate amount is held back at closing. If you are buying property from a non-resident, make sure your lawyer addresses the withholding requirement.

Related Forms

In addition to Form T2062, non-residents may need to file:

• T2062A - For dispositions of Canadian resource properties or timber resource properties, or certain partnership interests. This is a separate form from T2062.
• T2062B - For dispositions by trusts of certain types of property.
• T1 General return - The annual income tax return that reports the actual gain and calculates the final tax.
• Form T1135 - If you are a Canadian resident with foreign property exceeding $100,000 (not applicable to non-residents, but relevant if your residency status changes).

Professional Advice

Non-resident property dispositions involve complex tax rules, and the financial stakes can be significant. It is strongly recommended that you work with a Canadian tax professional who has experience with non-resident taxation. A qualified accountant or tax lawyer can ensure that Form T2062 is filed correctly and on time, calculate the optimal adjusted cost base, identify any available exemptions or treaty benefits, and prepare your Canadian tax return for the year of the sale. See our guide to finding an accountant for help locating a professional.

Final Thoughts

Form T2062 is an essential filing requirement for non-residents selling taxable Canadian property. By filing within 10 days of the sale and paying the estimated tax, you can obtain a Certificate of Compliance that significantly reduces the amount the buyer must withhold. This protects both the seller's cash flow and the buyer's legal obligations. Remember that filing T2062 does not replace the requirement to file a Canadian income tax return for the year of the sale. Plan ahead, gather your documentation, and work with a qualified tax professional to ensure a smooth transaction.

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