Have you heard about non-residency taxes? This little-known issue could collapse your deal.

Ticking a box just isn’t enough.

When you sign a Contract of Purchase and Sale, the Seller must tick a box to tell you whether they are a resident of Canada or not. We rely on that information when preparing closing documents.

In a recent real estate transaction handled by our team at The Notary Group, everything appeared routine—until the afternoon of the closing day, when the seller suddenly revealed they would not sign the required paperwork to show whether they were a Canadian resident for tax purposes.

They had checked the box in the Contract to say they were Canadian residents for tax purposes, but then refused to prove that with the necessary paperwork.

This last-minute surprise came as a shock: no red flags had been raised until the very last moment, when it was almost too late to deal with the matter in time.

So why is where the seller lives such a problem?

Section 116’s Requirements

The federal government wants to make sure that you have paid your taxes when you sell Canadian property. If you have left the country, Canada might not be able to enforce your payment of taxes, and CRA won’t be happy about that. So they ask the buyer to get involved, because they have the money.

Under section 116 of the Income Tax Act, if a non-resident of Canada sells real estate, the buyer is legally required to withhold and remit tax to the Canada Revenue Agency (CRA).

Yes, you read that right – the buyer is responsible for dealing with this problem.

This is not optional, and it cannot be waived or contracted out of.

In every transaction where the seller is a non-resident, the buyer’s legal obligation to CRA is triggered—no exceptions. Even if everyone wants to make an agreement to handle it differently, the law takes priority.

Why We Start With 50%

When there’s uncertainty about a seller’s residency status, The Notary Group begins by assuming the maximum potential risk: 50% of the full purchase price must be held and remitted to CRA.

This amount can’t be pro-rated. Even if only one of two sellers is a non-resident, the 50% holdback is calculated based on the entire purchase price—not their share.

If the seller wants this amount reduced, they must provide the buyer’s notary with a formal written opinion (usually from a qualified tax professional) that supports a lower amount under the Income Tax Act. The buyer’s side can then review that opinion and consider whether to reduce the holdback—but that’s discretionary.

Until then, we assume 50%.

Most Buyers Have Never Heard of Non-Residency Taxes

Most buyers have no idea that section 116 exists—or that it’s their responsibility to deal with it. Many are understandably confused and frustrated to learn they’re expected to handle a complex tax issue that seems like a seller problem, especially so close to closing.

But if it isn’t handled correctly, the buyer becomes the one personally liable for the tax, even if the seller is the one who caused the issue.

Why Non-Residency Taxes Can Kill a Deal

If this issue arises late in the transaction, it can have serious financial consequences:

  • If the seller has a mortgage greater than 50% of the sale price, they may be unable to clear title, which puts them in breach of contract.
  • The seller may receive far less money than expected—possibly only half.
  • There’s no discount for the buyer—they still pay the full purchase price. It’s just that half is withheld and goes to CRA, not to the seller.

These surprises can derail an otherwise solid transaction at the last moment.

A Real Case: Mao v. Liu

In the BC Supreme Court case Mao v. Liu (2017 BCSC 226), a notary failed to obtain proper proof of the seller’s residency. The transaction closed, and CRA later assessed the buyers for over $695,000 in tax.

The notary had relied on verbal confirmation and did not pursue further documentation. The court found that they had failed to make reasonable inquiries, and held them liable for the full amount.

The message was clear: a ticked box or vague assurance is not enough. Proper due diligence is mandatory.

When Are Non-Resident Funds Sent to CRA?

Buyers don’t have to submit the remittance to CRA immediately upon completion. CRA allows up to 30 days after the end of the month in which the sale completes—so the buyer typically has about 60 days total.

As a standard practice, The Notary Group holds the 50% in trust unless or until one of two things happens:

  1. The seller provides a CRA-issued comfort letter confirming that the funds may continue to be held in trust pending the outcome of their clearance application; or
  2. The buyer’s remittance deadline arrives—at which point the funds must be sent to CRA.

If the seller hasn’t started their clearance process early enough to obtain that comfort letter in time, the buyer’s notary has no choice but to remit the funds. The seller must then deal with CRA directly to apply for a refund.

Common Red Flags

  • Seller lives or works outside of Canada
  • A Power of Attorney is involved
  • Sale proceeds have been directed to a foreign account
  • The Seller resists providing a residency declaration
  • The Seller’s legal team is unfamiliar with section 116 procedures

If a seller cannot provide adequate proof of Canadian residency when asked, we must assume they are a non-resident and follow the legal withholding requirements.

  • Confirm the seller’s residency early in the process
  • Don’t rely on a checkbox—request a statutory declaration
  • Plan for a 50% holdback unless clear, formal advice justifies otherwise
  • Work with professionals who handle conveyancing regularly and understand tax compliance

Protecting Your Deal

Section 116 issues are technical, but the stakes are high—and timing is everything. Working with a notary firm that specializes in real estate gives you the best chance of identifying risks early, managing the legal requirements, and avoiding last-minute surprises.

At The Notary Group, we guide buyers and sellers through this process with care, experience, and attention to the law.

Contact us if you have any questions about how section 116 taxes might affect your deal.

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