A Non-Resident Seller Surfaced Four Days Before Closing in Ottawa

The situation

Kenneth owns a handful of small commercial and residential rental buildings around Ottawa, built up over about fifteen years of buying, renovating, and holding. He runs the portfolio largely on his own, and by his own account had closed enough purchases that he no longer thought of them as complicated. When a mixed-use building came up for sale at roughly $1,800,000 — retail space on the ground floor with residential units above — he moved quickly, negotiated directly with the seller's agent, and signed an agreement of purchase and sale with a closing date about five weeks out.

The seller was a man named Raymond, who owned the building through a numbered holding arrangement and dealt with Kenneth mostly by email. Raymond mentioned early on that he spent a lot of time abroad for work as an investment advisor managing a portfolio of overseas clients, but nothing in the listing, the agreement, or their exchanges flagged this as a legal issue. Kenneth retained our team about three weeks before closing, later than we would normally recommend for a property of this size, after his usual real estate lawyer became unavailable. By the time the file reached us, most of the conditions had already been waived and the deal was firm.

What the file was missing

As a matter of course on every purchase, our team asks the seller's lawyer to confirm the seller's residency status for Canadian tax purposes. On this file, that question did not get a clean answer until four days before the scheduled closing, when Raymond's lawyer confirmed what Kenneth's earlier conversations with Raymond had only hinted at: Raymond had been living outside Canada for tax purposes for nearly three years, managing his advisory clients remotely from abroad while keeping the Ottawa property as one of his few remaining Canadian assets.

Under the Income Tax Act, that status changes who is exposed if the sale's tax obligations are not handled correctly. A non-resident seller can apply to the Canada Revenue Agency (CRA) in advance for a clearance certificate, a document confirming that arrangements have been made to cover any tax owed on the sale. If a buyer closes without a clearance certificate in hand, the buyer is expected to withhold a significant portion of the purchase price — the exact percentage depends on the type of property involved — and remit it toward the seller's eventual tax bill rather than paying the seller in full. If a buyer pays a non-resident seller in full without that certificate and the seller's tax obligations are never settled, the CRA can look to the buyer for the amount that should have been withheld, even though the buyer had no role in creating the seller's tax liability.

Raymond's clearance certificate application had only been filed with the CRA a few weeks earlier, and his lawyer could not say when it would be processed — the CRA does not expedite these applications to accommodate a closing date. On a $1,800,000 purchase, the withholding at stake was roughly $450,000, a substantial sum for either side to have tied up on short notice. Because the residency issue surfaced so close to closing, there was almost no runway left to negotiate calmly. Kenneth had already arranged bridge financing against another property he was carrying to fund part of the purchase, on the assumption the deal would close as scheduled, and Raymond, for his part, was relying on the sale proceeds to complete a separate purchase of his own through a broker named Dov, adding pressure from both directions to close on time and in full.

What we did

1. Told Kenneth immediately that closing in full was not an option. Kenneth's instinct, once he understood the numbers, was to ask whether the withholding requirement could simply be skipped given how close everyone was to closing. We explained plainly that paying Raymond in full without a certificate would leave Kenneth personally exposed to a CRA claim for the unwithheld amount, with no cap tied to how well-intentioned the transaction had otherwise been.
2. Requested written confirmation of the residency status and the certificate application. We asked Raymond's lawyer to provide the CRA filing details and the date the application was submitted, so the holdback could be sized correctly and so there was a documented basis for the position we were taking with days, not weeks, to work with.
3. Proposed an escrow holdback rather than remitting funds to the CRA outright. We negotiated with Raymond's lawyer to hold the required $450,000 in an interest-bearing trust account controlled jointly by both law firms, giving Raymond a faster route to the funds once his certificate arrived than waiting on the CRA to process a refund after the fact.
4. Renegotiated the closing date rather than forcing an impossible deadline. With so little time to document a holdback of this size properly and coordinate Kenneth's bridge financing around a reduced initial payout, we recommended pushing closing back by two weeks. Raymond's lawyer agreed, since the alternative was a closing that risked falling apart entirely under the time pressure.
5. Reworked Kenneth's financing timeline with his lender and broker. Because less cash would move to Raymond at closing, Kenneth's mortgage advance needed adjusting, and the bridge financing he had arranged against his other property had to be extended past its original term. We coordinated directly with his lender to keep the numbers consistent across both files.

The outcome

The purchase closed two weeks later than originally planned, with $450,000 held back in escrow rather than paid to Raymond. That protected Kenneth completely from the liability that would otherwise have followed him — no claim was ever possible against him for Raymond's unpaid tax, because the withholding had already secured the CRA's interest in the sale the moment title transferred. Roughly five months after closing, Raymond's clearance certificate came through, showing a tax liability on the sale of about $110,000. That amount was paid from the escrowed funds to the CRA, and the remaining balance, close to $340,000, was released to Raymond along with the interest it had earned in trust.

The two-week delay was not free for Kenneth. His bridge financing on the other property had to be extended, adding roughly $9,500 in additional interest and lender fees he had not budgeted for, and he had to renegotiate timing on a tenant improvement contract he had lined up for the retail space, pushing his own rental income back by the same two weeks. None of that came close to the exposure he would have carried if the sale had closed in full without the withholding — a $450,000 claim from the CRA would have dwarfed a five-figure financing cost many times over — but it was still a real, avoidable cost. Had the residency question been asked and answered when Kenneth first signed the agreement, weeks earlier, the holdback could have been documented calmly, the closing date could have accounted for it from the outset, and the bridge financing could have been arranged around the actual numbers rather than reworked under pressure.

Kenneth's takeaway from the file was not that the withholding rule was unfair — he understood, once it was explained, exactly why it existed and whose interest it protected. His frustration was directed squarely at the timing: a fact his own conversations with Raymond had touched on months earlier only became a legal issue with days to spare, because nobody had asked the direct question early enough to matter.

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