Buying From a Non-Resident Seller: A Timmins Closing Held in Escrow

The situation

Marek is a personal support worker in Timmins. After separating from his spouse the previous year, he had spent months rebuilding his finances around a single income, budgeting carefully so his two children would have stability at whichever home they stayed in that week. By early summer he was pre-approved for a mortgage and ready to buy a home of his own for the first time in his life. He found a modest three-bedroom bungalow listed at roughly $340,000, made an offer with the standard financing and home inspection conditions, and had it accepted within a week.

The deal looked ordinary. Marek had never bought a property before, so he retained our team to act for him on the purchase, expecting the usual process: a title search, mortgage instructions from his lender, adjustments for property tax, and a closing date about six weeks out. Nothing about the listing or the agreement of purchase and sale suggested anything unusual about the seller. He had already given notice on his rental unit and lined up movers, working backward from the closing date as though it were fixed.

What the title search turned up

Early in the file, our team routinely asks every seller's lawyer to confirm their client's residency status for tax purposes. It is a standard question, and most of the time the answer is uneventful. In this case it was not. The seller, a man named Reza who had inherited the Timmins property from a relative, had been living and working outside Canada for the past two years. For tax purposes, he was a non-resident.

Under the Income Tax Act, that fact changes the transaction in an important way. When a non-resident sells Canadian real estate, the buyer — not the seller — can become responsible for a portion of the seller's tax liability if the sale is not handled correctly. The rule exists to stop non-resident vendors from disappearing with sale proceeds before the Canada Revenue Agency (CRA) collects any tax owed on the gain. A non-resident seller can apply to the CRA in advance for a document called a clearance certificate, which confirms the tax on the sale has been arranged for. If that certificate is in hand by closing, the buyer can pay the seller in full. If it is not, the buyer is expected to withhold a set percentage of the purchase price — historically 25% — and remit it toward the seller's tax bill instead of paying it to the seller.

The risk for Marek was direct. If Reza's lawyer had simply forwarded the sale proceeds to Reza in full and no clearance certificate existed, the CRA could later look to Marek, as the buyer, for that withheld amount — even though Marek had done nothing wrong. Buyers are not expected to investigate a seller's tax affairs generally, but once a seller's non-residency is known, the withholding obligation falls on the buyer's shoulders, whether or not the seller cooperates. It is not a rule most first-time buyers, or even many experienced buyers, ever encounter, precisely because it only bites when a seller happens to live outside the country.

Reza's application for a clearance certificate had only just been filed with the CRA, and processing was expected to take several months — well past Marek's closing date. His lawyer confirmed the application was in progress but could not promise any timeline, since the CRA does not expedite these reviews for the convenience of a pending closing. Two urgent problems needed solving at once: Marek could not be exposed to a future tax claim over money he never controlled, and Reza, understandably, did not want his sale proceeds tied up indefinitely while a government office worked through a routine application that was entirely outside his control.

What we did

1. Confirmed the residency issue in writing before drafting closing documents. We asked Reza's lawyer to state his residency status formally rather than relying on an informal answer, so both sides were working from the same understanding of the obligation before any money moved.
2. Explained the withholding requirement to Marek in plain terms. Many first-time buyers have never heard of this rule, since it only applies when a seller is a non-resident. We walked Marek through why part of his purchase price would not go directly to the seller, what would happen to it instead, and why this protected him rather than delayed him unfairly.
3. Negotiated an escrow holdback with the seller's lawyer. Rather than remitting the withheld funds to the CRA immediately at closing — which can also be done — we agreed with Reza's lawyer to hold roughly $85,000, calculated as 25% of the $340,000 purchase price, in an interest-bearing trust account jointly controlled by both law firms. This gave Reza a path to recover the funds quickly once his clearance certificate arrived, rather than waiting for the CRA itself to process a refund.
4. Set clear release conditions in a holdback agreement. The escrow terms specified exactly what would happen once the certificate was issued: the CRA-confirmed tax amount would be paid from the holdback, and the remainder would be released to Reza without further negotiation, removing any ambiguity or leverage disputes later.
5. Kept the closing date intact. Because the holdback addressed the risk directly, there was no need to delay closing while waiting for the CRA. Marek's mortgage funding, adjustments, and registration proceeded on the original schedule, which mattered a great deal to a client who had already given notice on his rental unit.

The outcome

The purchase closed on time. Marek took possession of his new home on the agreed date, moved his children in over the following weekend, and never had to explain to his lender or anyone else why the closing had slipped. The transaction was structured so that the non-resident withholding obligation was satisfied without either side absorbing an unfair share of the delay. About $85,000 of the purchase price sat in escrow rather than reaching Reza immediately, which was a real cost to him in the short term — he had been counting on the full proceeds to fund his move and had to arrange things more conservatively than planned in the meantime.

Roughly four months later, Reza's clearance certificate came through. It confirmed a tax liability on the sale of about $22,000, reflecting the modest gain in the property's value since he inherited it. That amount was paid out of the escrowed funds directly to the CRA, and the remaining balance, close to $63,000, was released to Reza shortly after, together with the interest it had earned while sitting in trust. No claim was ever made against Marek, and none could be, because the withholding had already covered the CRA's interest in the transaction the moment the sale closed.

This was not a case where one side got everything they wanted. Reza waited months longer than he would have liked for the bulk of his money, and paid the price of that delay in lost flexibility during his relocation abroad. Marek, for his part, closed on schedule but had to accept a transaction structure he had never anticipated needing to understand, and a portion of his conversation with his lawyer that he had not budgeted time for. Both outcomes were the direct, foreseeable consequence of one fact discovered early: the seller's residency status. Handled early, it became a manageable administrative step that cost both sides some patience. Handled late, or not at all, it could have left Marek personally on the hook for someone else's unpaid tax, at a scale that would have dwarfed the inconvenience either of them actually experienced.

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