Are you a Non-Resident Seller of a Taxable Canadian Property (TCP)? If you are, the Seller’s Lawyer will be obliged to withhold 25% of the Selling Price from you until a Clearance Certificate has been issued by the Canada Revenue Agency (CRA).
The reason a Seller’s Lawyer holds the 25% is that he will be on an undertaking to the Buyer’s Lawyer not to release these funds to you until the Clearance Certificate is issued by CRA. The Clearance Certificate is issued when the Federal Government of Canada is satisfied that any Capital Gains taxes applicable to the sale of the Property by the Non-Resident have been paid. If the Clearance Certificate is not obtained, the BUYER will be responsible for paying the taxes due and any penalties.
SOME GENERAL POINTS
- The sale of an interest in Canadian real property is a TCP.
- Non-Residents who dispose of a TCP are required to obtain a “Clearance Certificate” from CRA.
- Income taxes payable are basically 25% of the excess of the sale price over the adjusted cost base of the TCP.
- The correct CRA form is completed and filed and once approved by CRA, a clearance certificate is issued.
- The clearance form must be remitted, by Registered Mail, within 10 days of the sale.
THE BASIC PROCESS
- The Seller’s Lawyer withholds 25% of the Selling Price from the Seller and gives the Seller 75% of the Selling Price. The Seller’s Lawyer is on an undertaking to provide the Buyer’s Lawyer with a Clearance Certificate.
- HIRE A CANADIAN ACCOUNTANT TO DEAL WITH THIS FOR YOU!!
- We will provide your Accountant with the details we have of the sale.
- The Accountants will contact you respecting additional information they may require.
- The necessary form, with supporting documents and required withholding tax, which will be provided by the Seller’s Lawyer to the Accountant from the 25% holdback funds, will be prepared and forwarded to CRA.
- CRA will review the submission, advise of changes needed or confirm all is good and issue a Clearance Certificate. This can take from two weeks to two months.
- Once the Clearance Certificate is issued, the Seller’s Lawyer will provide a copy to the Buyer’s Lawyer and the Seller and then release the balance of the holdback funds.