Income Tax And Non-Residents – Part 2

Income Tax And Non-Residents - Part 2



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In part 1 of our article on taxation of non-resident Canadian income, we dealt with the various filing requirements non-residents must complete on a yearly basis in relation to their Canadian sourced income.  This income includes, but is not limited to, Canada Pension Plan benefits, Old Age Security benefits, super-annuations, investment income generated from Canadian resident entities.

In part 2 of our summary on the taxation of Canadian income earned by non-residents of Canada, we deal with income generated from taxable capital property situated in Canada.  Taxable capital property includes the sale of any real, depreciable or other immovable property, and the reporting requirement of any capital gain or loss arising from the sale of such property is captured in section 116 of the Income Tax Act (ITA).

If a non-resident holds any interest in taxable Canadian property and wants to sell that property, there is a specific process that must be adhered to in order to correctly satisfy all legislative and Canadian income tax requirements prevailing upon such an anticipated transaction.

As mentioned in part 1, unless an alternative tax rate is specified in a tax treaty or Information Exchange Agreement (IAE) between Canada and another country, a standard withholding tax rate of 25% is levied on the realization of any Canadian-sourced income or capital gains by non-resident individuals.  When a non-resident partially or completely owns taxable Canadian property and wishes to sell that property, that non-resident, normally with the assistance of a lawyer and/or accountant, needs to undertake a specific process in order to satisfy the previously mentioned legislative and Canadian income tax requirements.  An explanation of that process is the purpose of this article.


Receiving Approval For The Sale – The Certificate of Compliance

For purposes of this article, we will assume that a non-resident of Canada living in the United States is the 100% owner of a rental property in Canada, and wishes to sell it.  He has secured an agreement with another individual for that other individual to purchase the property.



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If the sale completes, the lawyer for the non-resident will be required to remit tax equal to 15% of the proceeds of the sale (the tax treaty between Canada and the U.S.A applies a non-resident tax rate of 15% between the 2 countries, overriding the ITA-imposed rate of 25%).  Such a high tax rate is onerous and will ultimately result in a substantial refund on the U.S resident tax return of the Canadian non-resident once he reports the transaction.

However, by securing a Form T2068, Certificate – The Disposition of Property by a Non-Resident of Canada (commonly referred to as a Certificate of Compliance) from the CRA on the transaction, the withholding tax to be remitted by the non-resident will be reduced to 25% of the anticipated capital gain on the sale.

Application for a Clearance Certificate is executed by completing on or more of the following forms:

  1.  T2062 – Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property.

2. T2062A - Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Canadian Resource and Timber Resource Property, Canadian Real Property (other than Capital Property) or Depreciable Taxable Canadian Property.

3. T2062B- Notice of Disposition of a Life Insurance Policy in Canada by a Non-Resident of Canada.                                               ,


We will not be dealing here with the circumstances surrounding the submission or T2062B.

Where the non-resident is disposing of depreciable property, both forms T2062 and T2062A must be submitted in the same application package.

The T2062 series of forms essentially provides for a description of the property being sold and the particular contact information of the non-resident vendor. The non-resident vendor must have an Individual Tax Number (ITN).  While the Social Insurance Number can be used by Canadians owning Canadian property who have moved outside of Canada and who wish to sell that property, other individuals who do not have a Social Insurance Number can use for T1261 - Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents – to obtain an identifier number.

In addition to filing the T2062 forms, the non-resident must file information supporting the proposed transaction, such as an agreement for sale.  The T2062 form must be submitted to the CRA within 10 business days of the date that the agreement has been entered into.

Because the uncertain nature of the time it will take to secure a Certificate of Compliance on the transaction, it is advised to allow for as much time as possible from the time of the sale agreement to the time of completion of the sale.  This will hopefully provide ample time for the CRA to receive the application package, receive and additional information that may have been missing in the original submission (if necessary) and process and approve the Certificate of Compliance.

All required documentation must be sent to the Tax Services Office nearest to where the property is located. Once the CRA is satisfied with the reporting, documentation and payment, it will issue a Form T2068, Certificate – The Disposition of Property by a Non-Resident of Canada.

Approval of the T2062 form, and processing of the Certificate of Compliance, authorizes the non-resident’s lawyer conveyancing the transaction to remit to the CRA 25% of the estimated capital gain as reported on the T2062 form.



If you have any questions or want to speak further about your tax situation, contact Nicholas Kilpatrick at


Nicholas Kilpatrick is a partner with the accounting firm of Burgess Kilpatrick and specializes in tax structuring and business development for his small and medium business sized clients.  Please visit our website at or on Facebook at Kilpatrick for more information on our firm.  This article has been paraphrased from an article by Steve Suarez of Borden Ladner Gervais, Toronto, titled “Canada’s 88(1)(d) Tax Cost Bump: A guide for Foreign Purchasers.






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