Why is the buyer holding back part of my sale price?
Because the purchaser, not you, carries the risk. On a disposition of taxable Canadian property by a non-resident vendor the purchaser can be left liable for an amount measured on the price if the clearance certificate does not issue, so their solicitor holds part of the proceeds until it does. The holdback is protection for the buyer rather than a payment of your tax, and it is calculated on the sale price rather than on your gain, which is why it is usually larger than the tax actually owing. It stays in trust until the certificate arrives or the amount is remitted.
Can I apply for the certificate before the sale closes?
Yes, and that is the difference between a tidy transaction and a long one. Applied for in advance, the certificate governs what is held at closing: the computation is agreed with the authority on the cost base and the price, and the holdback is released against it. Applied for afterwards, the purchaser will already have remitted on the price, and the same money becomes a refund claim recovered through the return for the year of disposition — much slower, and dependent on paperwork from a buyer who has moved on. Start it when the agreement of purchase and sale is signed, not when the closing date looms.
How long does a section 116 certificate take to issue?
We do not give a figure for this, and anyone who does is guessing at the wrong variable. What moves the timetable is the state of the application: whether the cost base is evidenced, whether the agreement and the statement of adjustments are provided, whether the vendor's earlier years are filed, and whether the property's history raises a question the file does not answer. An application that arrives complete is processed; one that generates correspondence waits for each round of it. Plan the closing on the footing that the certificate takes time, and agree in the contract what happens to the holdback if it has not arrived.
What if the holdback is more than the tax on my gain?
It generally is more, and by design: the holdback is measured on the sale price while the tax is measured on the gain. The certificate is the mechanism that closes that gap before the money moves, because once the authority has agreed the computation the holdback is released against the amount actually due. If no certificate is obtained the excess is not lost, but it is delayed: the gain is reported on the return for the year of disposition, the amount remitted is credited against the tax computed there, and the difference comes back with the assessment.
Do I still file a return after the certificate issues?
Yes. The certificate deals with clearance at the transaction; it does not report the gain. The disposition goes on a return for the year in which it happened, where the gain is computed, any adjustment applied, and the amount already remitted on your behalf credited against the tax. Two things follow. The return is where an over-remittance is recovered, so it should be filed even when the conclusion is that a refund is due rather than tax. And the figures on it have to match those the certificate was issued on, because they came from the same computation.
Is my property taxable Canadian property if I sell from abroad?
It is a defined category rather than everything you own in Canada. Real property situated there is the clear case, along with interests in it, and shares can fall inside the definition where their value derives principally from such property. Whether your asset is inside the category is the first question in the file rather than a detail, because the clearance step and the purchaser's holdback both follow from the answer. Where the position is arguable, resolve it before the closing date is agreed. The alternative is a purchaser's solicitor taking the cautious view at the last moment, on a transaction you had planned without a holdback.
Are US-listed ETFs US-situs property for a non-resident's estate?
Shares issued by a US company are generally US-situs for estate tax purposes, and a fund domiciled in the United States is a US company however global its holdings. A fund domiciled elsewhere that holds the same underlying stocks generally is not. That distinction — the domicile of the wrapper rather than the location of the investments — is why cross-border portfolios get restructured, and it should be confirmed against your own holdings before anything is sold. See US estate tax exposure for Canadians.
Can I avoid capital gains tax on a foreign property?
Not by virtue of it being foreign — there is no exemption for that, and the "keep it offshore" advice you may have read is how people acquire penalties rather than savings. What genuinely reduces the gain is ordinary and legitimate: principal residence relief where the property qualifies and the designation is made correctly, a properly built cost base including acquisition costs and capital improvements, the timing of the disposition, the treaty rules for real property, and credit for the foreign tax paid. See principal residence and foreign property.
