A non-resident of Canada sells a vacant Ontario lot, held as capital property, for $900,000; it cost $600,000. The buyer knows the seller is a non-resident, and no clearance certificate has been issued by closing. Under s. 116 of the Income Tax Act, how much is the buyer liable to remit on the seller's behalf?
Correct Answer
C) 25% of the $900,000 price, or $225,000
For taxable Canadian property that is not depreciable property, s. 116(5) makes a purchaser who has no clearance certificate liable for 25% of the cost of the property: 25% x $900,000 = $225,000, which the purchaser may withhold from the price. The 25%-of-gain figure ($75,000) is what the seller pays to obtain a certificate under s. 116(4).
Why This Is the Correct Answer
Real property in Canada is taxable Canadian property. For non-depreciable property, s. 116(5) sets the purchaser's liability at 25% of the purchaser's cost less any certificate limit. With no certificate, that is 25% of $900,000, or $225,000, remitted within 30 days after the end of the month of purchase and recoverable from the seller.
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