A non-resident of Canada sells an Alberta property. What specific tax obligations apply to this transaction?

Q: What is the correct answer to: A non-resident of Canada sells an Alberta property. What specific tax obligations apply to this transaction?

The correct answer is The buyer must withhold and remit a portion of the sale price to CRA, and the non-resident must obtain a clearance certificate under Section 116 of the Income Tax Act or face withholding of 25% of the gross sale price. Under Section 116 of the Income Tax Act, when a non-resident sells Canadian real property, the buyer must withhold up to 25% of the gross sale price and remit it to the CRA unless the seller obtains a clearance certificate. This protects Canada's ability to collect capital gains tax from non-residents who may not file returns.

Q: What background knowledge is needed for this Real Estate Taxation question?

Section 116 of the Income Tax Act creates a compliance mechanism for non-resident property sales. The buyer or their lawyer holds back funds to ensure CRA receives any tax owing. A clearance certificate, obtained by the seller before or shortly after closing, can reduce or eliminate the withholding. The seller must also file a Canadian tax return reporting the disposition.

Q: What is a good way to remember the answer to this Real Estate Taxation question?

Section 116 means the buyer holds 25% of the line (sale price) for CRA. No clearance certificate, no release of funds. 116 = 1 non-resident, 1 withholding, 6-figure impact. When you see a non-resident seller question, recall '116 Holds the Line' — buyer withholds 25%, clearance certificate is the key to releasing funds.

Q: What exam tip applies to this Real Estate Taxation question?

If a question mentions non-resident seller, immediately think Section 116, 25% withholding, and clearance certificate. The buyer bears the withholding obligation.

Q: How does this Real Estate Taxation concept apply in real world practice?

A foreign investor sells their Calgary condo for $500,000. The buyer's lawyer must withhold $125,000 (25%) and remit it to CRA. The seller applies for a clearance certificate showing the actual tax owing is only $30,000, and the remaining $95,000 is released from the holdback.

Question

Real Estate TaxationABHARD

A non-resident of Canada sells an Alberta property. What specific tax obligations apply to this transaction?

Answer Options

A

Non-residents pay only Alberta property taxes

B

The buyer must withhold and remit a portion of the sale price to CRA, and the non-resident must obtain a clearance certificate under Section 116 of the Income Tax Act or face withholding of 25% of the gross sale price

C

Non-residents are exempt from Canadian taxes on Alberta property sales

D

Non-residents pay double the normal capital gains tax