Certificate of Compliance in Canada: Non-Resident Guide
A Certificate of Compliance is a CRA document that non-residents of Canada must obtain when they sell taxable Canadian property. Under Section 116 of the Income Tax Act, the buyer is legally required to withhold 25% of the gross sale price and remit it to the CRA unless the seller has obtained this certificate. The certificate confirms that the non-resident has reported the sale and paid or secured the estimated Canadian tax on the capital gain.
This guide covers when you need a certificate, how to apply using Form T2062, what happens without one, processing timelines, and the consequences of not filing on time.
What Is a Certificate of Compliance in Canada?
A Certificate of Compliance is a clearance document issued by the Canada Revenue Agency under Section 116 of the Income Tax Act that confirms a non-resident seller has met their Canadian tax obligations on the sale of taxable Canadian property. The CRA issues the certificate once the non-resident files the required forms and pays or secures the estimated capital gains tax owing on the disposition. Without this certificate, the buyer’s lawyer is required to hold back 25% of the total sale price, not just the profit, and remit it to the CRA on the seller’s behalf.
The certificate applies specifically to dispositions of taxable Canadian property by non-residents. Taxable Canadian property includes real estate located in Canada such as homes, cottages, rental properties, and commercial buildings. It also includes shares of private Canadian corporations where more than 50% of the value comes from Canadian real property, and partnership interests that derive most of their value from Canadian property or resources. The most common situation is a non-resident selling a Canadian rental property or a former principal residence after moving out of Canada. Our non-residents with Canadian rental income guide covers the ongoing tax obligations non-residents face while they still own the property.
The Certificate of Compliance is not the same as a clearance certificate for an estate (Form TX19). The estate clearance certificate confirms that a deceased person’s taxes are fully paid before assets are distributed to beneficiaries. The Section 116 Certificate of Compliance is specifically for non-resident property dispositions.
When Do Non-Residents Need a Certificate of Compliance?
The Certificate of Compliance is required whenever a non-resident of Canada sells or disposes of taxable Canadian property, regardless of whether a capital gain or loss results from the sale. The obligation applies to anyone who is not a Canadian resident for tax purposes at the time of the sale. This includes Canadians who moved abroad and became non-residents, foreign nationals who purchased Canadian property as an investment, and snowbirds who may have triggered non-resident status through changes in their residential ties.
If you left Canada and are unsure of your residency status, the rules around departure tax and the Substantial Presence Test determine how the CRA and IRS classify you. Even former Canadian residents who still own property in Canada must go through the Section 116 process when they eventually sell.
Non-residents who have been earning rental income from the property face an additional layer of complexity. If rental income was earned but not reported to the CRA under Section 216 of the Income Tax Act, the CRA will withhold the Certificate of Compliance until all outstanding Section 216 returns have been filed and assessed. This can delay the release of your sale proceeds by many months. The NR6 approval for rental income in Canada guide explains how non-residents can reduce withholding on rental income and stay compliant while they own the property. Filing your rental income returns on time each year prevents this problem from surfacing at the point of sale.
How to Apply for a Certificate of Compliance?
The application process starts with filing Form T2062 with the CRA within 10 days of the property sale closing date. Form T2062 is officially titled “Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property.” You can also file it up to 30 days before the closing date if you have a signed purchase agreement. Filing before closing is the better approach because it gives the CRA more time to process the request and can speed up the release of your funds. The form requires details about the property, the sale price, the adjusted cost base, selling expenses, and the estimated capital gain.
After the CRA receives your form, they review the submission and calculate the estimated tax owing on the capital gain. The CRA then sends you a letter stating the amount you must pay. Once you remit the payment by certified cheque or wire transfer, the CRA processes the payment and issues the Certificate of Compliance (Form T2064). Your lawyer presents the certificate to the buyer’s lawyer, and the withheld funds are released minus the tax already paid.
The capital gain is calculated the same way as for Canadian residents. Sale price minus adjusted cost base minus selling expenses equals the capital gain. The adjusted cost base includes the original purchase price plus legal fees, land transfer taxes, and any capital improvements made to the property. Selling expenses include real estate commissions and legal fees on the sale. The capital gains inclusion rate of 50% applies, and the tax is calculated at the applicable non-resident tax rate. Our capital gains tax on real estate Alberta guide walks through the full calculation for property sellers. Understanding Part XIII withholding tax Canada rules is also important because different types of Canadian-source income face different withholding rates for non-residents.
Documents and Forms Required
The table below lists the key forms involved in the Certificate of Compliance process.
| Form | Purpose | Who Files It |
|---|---|---|
| T2062 | Request for Certificate of Compliance (capital property) | Non-resident seller |
| T2062A | Request for Certificate of Compliance (depreciable/resource property) | Non-resident seller |
| T2064 | Certificate of Compliance issued by CRA | Issued by CRA to seller |
| Section 216 return | Annual rental income return for non-residents | Non-resident property owner |
| T1 non-resident return | Canadian income tax return for year of sale | Non-resident seller |
What Happens Without a Certificate of Compliance?
Failing to obtain a Certificate of Compliance creates serious financial consequences for both the non-resident seller and the Canadian buyer. If the non-resident seller does not apply for the certificate, the buyer is legally required to withhold 25% of the gross purchase price (not the gain) and remit it to the CRA within 30 days after the end of the month in which the purchase was made. For depreciable property, the withholding rate increases to 50% of the gross price.
On a $500,000 property sale, that means $125,000 is sent directly to the CRA even if the actual capital gain is only $50,000. The non-resident seller then has to file the appropriate returns and wait for the CRA to assess the return and issue a refund for the overpayment, which can take months.
The buyer also faces liability if they fail to withhold and remit. If the buyer does not withhold the required amount and the CRA has not received a Certificate of Compliance, the buyer becomes personally liable for the full withholding amount plus interest and penalties. This is true even if the buyer did not know the seller was a non-resident. Real estate lawyers in Canada routinely ask sellers to sign a statutory declaration confirming their residency status to protect the buyer. If the seller declares they are a Canadian resident and this turns out to be false, the buyer may still face CRA collection action initially and then pursue the seller for reimbursement.
How Long Does the Certificate of Compliance Take?
The CRA’s processing time for a Certificate of Compliance varies, but most applications take between 12 and 16 weeks from the date the complete submission is received. This timeline assumes all required documents are included, no rental income returns are outstanding, and the tax payment is made promptly once the CRA issues the payment request. Incomplete applications, missing information, or unfiled Section 216 returns can extend the timeline significantly.
Some non-residents have reported delays of more than 12 months when the CRA discovered unreported rental income that needed to be assessed before the certificate could be issued. Filing early, ideally before the closing date, and ensuring all prior-year tax obligations are up to date are the two most effective ways to speed up the process. Calgary Tax Consulting provides certificate of compliance services in Calgary, non-resident tax in Calgary, and international tax support to help non-residents prepare their T2062 applications, calculate capital gains accurately, and resolve any outstanding CRA obligations before the sale closes.
Common Mistakes That Delay or Complicate the Certificate of Compliance
- Filing T2062 late. The form is due within 10 days of closing. Late filing delays the entire process and may result in the buyer remitting the full 25% withholding before your application is even reviewed.
- Not reporting prior rental income. If you earned rental income from the property and never filed Section 216 returns, the CRA will not issue the certificate until every outstanding return is filed and assessed. This is the number one cause of long delays.
- Incorrect adjusted cost base. Many non-residents do not keep records of their original purchase costs, legal fees, and capital improvements. An incorrect ACB leads to an incorrect capital gain calculation, which delays CRA processing or results in overpayment of tax.
- Confusing gross withholding with actual tax. The 25% withholding is based on the gross sale price, not the gain. The actual tax is usually much less. Non-residents who do not file the T2062 lose access to the excess withholding until they file their Canadian tax return.
- Assuming the certificate is optional. The certificate is technically optional for the seller, but without it, the buyer withholds 25% of the gross price. This turns a $50,000 tax bill into a $125,000 cash flow problem that takes months to resolve.
- Not filing a Canadian tax return after the sale. The Certificate of Compliance does not replace your obligation to file a non-resident income tax return for the year the property was sold. Filing the return is how you recover any overpaid tax and close your file with the CRA. A proper tax review ensures nothing is missed in this final step.
Frequently Asked Questions
1. What is a Certificate of Compliance in Canada?
A Certificate of Compliance is a CRA document issued under Section 116 of the Income Tax Act. It confirms that a non-resident seller of taxable Canadian property has reported the sale and paid the estimated capital gains tax owing to Canada.
2. How do I apply for a Certificate of Compliance?
File Form T2062 with the CRA within 10 days of the property sale closing date, or up to 30 days before closing. Include property details, sale price, adjusted cost base, and selling expenses. The CRA will assess the tax and issue the certificate once payment is received.
3. How long does the CRA take to issue a Certificate of Compliance?
Most applications are processed in 12 to 16 weeks. Delays occur when applications are incomplete, prior rental income returns are outstanding, or the CRA requests additional documentation. Filing before the closing date helps speed up the timeline.
4. What happens if I sell Canadian property without a Certificate of Compliance?
The buyer must withhold 25% of the gross sale price (50% for depreciable property) and remit it to the CRA. The non-resident seller can recover overpaid tax by filing a Canadian income tax return, but this process takes additional months.
5. Do I still need to file a Canadian tax return after getting the certificate?
Yes. The Certificate of Compliance does not replace the requirement to file a non-resident income tax return for the year the property was sold. Filing the return is how you claim any refund for overpaid tax and finalize your CRA obligations.