Non-Resident Withholding Tax

Non-Resident Withholding Tax is a federal obligation under the Income Tax Act (Canada) requiring a purchaser of Canadian real property to withhold and remit a portion of the purchase price to the Canada Revenue Agency (CRA) when the seller is a non-resident of Canada. It applies equally across all provinces, including British Columbia, regardless of provincial rules. The obligation rests with the purchaser, not the seller, meaning the buyer can be held liable if withholding is not completed correctly.

Under the Income Tax Act (Canada), the withholding amount is generally 25% of the gross purchase price for most property types, though a higher rate may apply where the property was used in a business or is depreciable property. Because rates and exceptions can change, purchasers should confirm the current applicable percentage with the CRA or a qualified tax professional before completing the transaction. The withheld amount is held in trust by the purchaser's notary or lawyer until remitted or released upon receipt of a clearance certificate.

A CRA clearance certificate is issued under section 116 of the Income Tax Act (Canada) and confirms that the non-resident seller has either paid, or made arrangements to pay, any Canadian tax owing on the sale. If a valid clearance certificate is obtained before or at completion, the purchaser may be relieved of the obligation to withhold the full statutory amount. In practice, BC notaries and lawyers routinely verify the certificate's existence and scope before releasing withheld funds from their trust accounts.

Confirming seller residency status is a standard conveyancing step in every BC residential real estate transaction, typically performed by the seller's notary or lawyer. The seller is generally required to provide a statutory declaration or other acceptable evidence of their residency status before completion. BC real estate licensees acting under the Real Estate Services Act (RESA) and supervised by the British Columbia Financial Services Authority (BCFSA) should make clients aware of the residency inquiry process, though the legal withholding mechanics are managed by conveyancing professionals.

At completion, the purchaser's notary or lawyer holds the withholding amount in a trust account rather than disbursing it directly to the seller. If no clearance certificate has been received, the withheld funds must be remitted to the CRA within the deadline prescribed under section 116 of the Income Tax Act (Canada). Any remaining funds owed to the seller after tax is settled are then released from trust, ensuring both parties' obligations are properly discharged.

Yes, the withholding obligation under section 116 of the Income Tax Act (Canada) applies to strata lots in BC just as it does to freehold properties, because a strata lot is an interest in Canadian real property. The fact that the property is governed by the Strata Property Act (SBC 1998, c. 43) does not alter the federal tax withholding requirement. Purchasers of strata lots should ensure their conveyancing professional confirms the seller's residency status and manages any required withholding at completion.

No, these are two distinct obligations. Non-Resident Withholding Tax is a federal requirement under the Income Tax Act (Canada) focused on ensuring the non-resident seller's capital gains tax is paid to the CRA. BC's Additional Property Transfer Tax, governed by the Property Transfer Tax Act, is a provincial tax payable by certain foreign purchasers acquiring residential property in designated regions of BC. A transaction can trigger one, both, or neither obligation depending on the residency status of both the buyer and the seller.

BC real estate licensees licensed under the Real Estate Services Act (RESA) and regulated by the British Columbia Financial Services Authority (BCFSA) are not qualified to provide tax or legal advice, including determinations of non-resident status or withholding calculations. A licensee's role is to ensure clients are aware that the issue may arise and to direct them to a qualified notary, lawyer, or tax professional. Providing specific tax guidance beyond this would fall outside a licensee's permitted scope of practice under RESA.

Under section 116 of the Income Tax Act (Canada), if the purchaser fails to withhold and remit the required amount, the purchaser can become personally liable to the CRA for the tax that should have been withheld, up to the withholding amount. This liability exists even if the purchaser was unaware of the seller's non-resident status, which is why confirming residency before completion is critical in BC conveyancing practice. Purchasers should not rely solely on a seller's verbal representation of residency status.

Yes, if a non-resident beneficiary inherits BC real property under the Wills, Estates and Succession Act (WESA) and subsequently sells it, the disposition is still considered a sale of Canadian real property by a non-resident and triggers the withholding obligations under section 116 of the Income Tax Act (Canada). The estate or probate process does not eliminate the federal withholding requirement at the point of sale. The purchaser's conveyancing professional must still confirm residency status and manage withholding at completion in the usual manner.