Disposition of taxable Canadian property by non-residents

As noted above, a non-resident of Canada is liable to pay Canadian income tax on capital gains from dispositions of “taxable Canadian property.” Taxable Canadian property includes real estate situated in Canada, capital interests in certain partnerships and trusts, and shares of some corporations, certain business assets used in a business carried on in Canada and, in some cases, a Canadian resource property, a timber resource property, an income interest in a trust and a life insurance policy in Canada. “Taxable Canadian property” excludes shares of corporations (and partnership interests and interests in trusts) that did not, at any time during the preceding 60 months, derive their value principally from real or immovable property situated in Canada, Canadian resource property or timber resource property.

The purchaser of taxable Canadian property is required to withhold tax from the purchase price and remit it to the CRA unless the non-resident vendor obtains a “clearance certificate” from the Minister of National Revenue verifying that the non-resident vendor has made arrangements for the payment of any resulting tax. There’s another exemption from the withholding tax requirement where the purchaser concludes after reasonable inquiry that the vendor is resident in a country that has a tax treaty with Canada;

  • at the time of the disposition, the applicable tax treaty provides that the property is treaty-protected; and
  • the purchaser sends to the CRA, no later than 30 days after the date of the acquisition, a notice setting out basic information about the transaction, the vendor and the purchaser.

This exemption is intended to ease the administrative burden by allowing an exception for withholding tax in a situation in which there will ultimately be no Canadian tax liability due to an exemption under a tax treaty. However, the onus is on the purchaser to confirm the vendor’s country of residence, as well as the fact that the property disposed of is treaty-protected.