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Taxable Canadian Property (TCP) & Section 116

May 12, 2025 by admin General, International Taxation, Tax Planning, Voluntary Disclosure
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Taxable Canadian Property (TCP) & Section 116

Taxable Canadian Property refers to specific types of Canadian assets that, when sold or transferred by a non-resident of Canada, may trigger Canadian tax obligations. Section 116 of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) establishes the reporting and withholding rules for non-residents disposing of TCP.

The main purposes of Section 116 are:

To ensure Canada collects tax on capital gains from non-residents.

To require notification to the CRA and allow the CRA to issue a clearance certificate.

To require buyers to withhold part of the purchase price unless the seller has obtained a clearance certificate.

What is Taxable Canadian Property (TCP)?

TCP generally includes:

  1. Real property in Canada (e.g. land, buildings).
  2. Capital interests in certain entities (e.g. shares of a private Canadian company, interests in partnerships or trusts), if:
    • More than 50% of the value of the entity is derived from Canadian real estate, natural resource properties, or timber limits at any time in the last 60 months.

3. Certain resource and timber properties in Canada.

Capital Gains Tax on TCP

Non-residents are subject to Canadian capital gains tax on the disposition (sale or transfer) of TCP, unless a tax treaty exemption applies (e.g. under the Canada-U.S. Tax Treaty in some cases).

Section 116 Certificate – Mandatory Notification

A non-resident disposing of TCP must notify the CRA by submitting a Form T2062 or T2062A (depending on the type of property) within 10 days of the disposition (or earlier if there’s a proposed transaction).

Failure to file this form may result in a penalty of $25/day (up to $2,500), and the CRA may holdback 25%–50% of the proceeds until compliance.

Withholding Tax Requirements

The purchaser is responsible for withholding and remitting to the CRA:

  • 25% of the gross proceeds (or sometimes more, depending on the property), unless a Clearance Certificate (from Form T2062 or T2062A) is provided.
  • If a certificate is not provided, the buyer could be liable for the entire withholding amount.

Treaty Relief and Refunds

  • If a tax treaty exempts the gain, the non-resident can apply for a clearance certificate based on that exemption.
  • If tax was withheld and the non-resident was not taxable, they may file a Canadian tax return (T1 or T2) to claim a refund.

Common Examples

  • Selling a condo in Toronto:
    • A non-resident must file Form T2062.
    • The buyer must withhold 25% of the sale price unless a clearance certificate is shown.
  • Selling shares in a private Canadian corporation that owns real estate:
    • These shares may qualify as TCP, triggering the same reporting and withholding rules.

 

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Disclaimer

Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.