What withholding obligations kick in if I'm buying a business from a non-resident seller?
When you buy shares or certain other taxable Canadian property from a non-resident seller, the Income Tax Act puts real responsibility on you as the buyer, not just on the seller. Unless the seller obtains a clearance certificate from the CRA confirming that their Canadian tax obligations on the sale have been addressed, you are generally required to withhold a portion of the purchase price and remit it directly to the CRA, rather than paying the full amount to the seller.
The consequence of skipping this step if no certificate is in hand is serious: a buyer who pays the seller in full without withholding can become personally liable for the non-resident seller's unpaid Canadian tax on the transaction, which is a real risk buyers sometimes discover only after the seller has moved the money out of reach.
This is why purchase agreements involving a non-resident seller typically build in specific closing mechanics: either the seller delivers a clearance certificate before closing, or a portion of the price is withheld and held back (often in escrow) until the certificate is obtained or the withholding obligation is otherwise satisfied. This needs to be planned for from the outset, not addressed at the closing table.
Key takeaways
- A buyer can be required to withhold part of the price unless the seller has a CRA clearance certificate.
- Paying a non-resident seller in full without withholding can make the buyer personally liable for the seller's unpaid tax.
- Purchase agreements typically build in a certificate or holdback mechanism to manage this.
- Plan for this from the outset of the deal, not at the closing table.