Many people own more than one piece of real estate. Perhaps it’s a cottage, or a condo that was rented out for investment purposes. In some cases, the owner may not even live in Canada anymore.
If you’re buying a home (or any real estate) in Canada from a seller
who normally does not live in Canada (called a non-resident), you may be
liable for additional taxes if you are not careful. Under section 116
of the Income Tax Act
of Canada, a buyer who buys Canadian property from a non-resident may
be liable for up to 25% of the capital gains the non-resident seller
made on the sale.
In such cases, the buyer must obtain a Clearance Certificate issued
by the Canada Revenue Agency under section 116 to relieve them of this
tax liability. The process to obtain this certificate can be complex
and must involve the seller’s lawyer and the seller’s accountant working
together. In some cases, CRA can take a few months to issue the
certificate. If you are a non-resident seller, or are buying property
from a seller who normally does not live in Canada, consult your lawyer
about the s. 116 clearance certificate process.