Selling a Non-Resident's Property: Getting the Withholding Right

The situation

Giulia's father had spent the last eleven years of his life outside Canada. He moved abroad after retiring, kept his Canadian citizenship, and never sold the small rental property he owned in Orillia, a modest bungalow he had once lived in himself before he left. He rented it out to the same tenant for most of that time, and the rent covered its expenses without much left over. When he died, Giulia, a personal support worker, was named executor of his estate. Her brother Antonio, an early childhood educator, was the only other beneficiary.

Neither sibling had handled an estate before, and neither had reason to think this one would be complicated. The estate was straightforward on paper: a modest bank account, some furniture, and the Orillia property, which the siblings agreed to sell rather than keep as landlords themselves. A buyer named Kasia made an offer within weeks of the property being listed, close to the asking price, and a closing date was set for about ten weeks out.

Giulia came to us shortly after the offer was accepted, mostly to confirm the estate's paperwork was in order for closing. She assumed the sale would work the same way any estate sale does — proceeds in, expenses and debts paid, the balance split between her and Antonio. It did not, because her father had not lived in Canada for tax purposes when he died, and that single fact changed how the sale itself had to be structured.

The tax problem

Under the Income Tax Act, when a non-resident of Canada disposes of Canadian real property, the purchaser is required to withhold a substantial portion of the purchase price and remit it to the Canada Revenue Agency, unless the vendor has obtained a compliance certificate before closing. This rule exists because the CRA has limited ability to collect tax from someone who no longer lives in the country, so it shifts the collection risk onto the buyer instead. Real estate lawyers on the purchase side take this obligation seriously, because if they fail to withhold when they should have, the purchaser can become personally liable for the amount that should have been remitted.

An estate administering property on behalf of a person who was non-resident at death steps into the same position as the deceased would have occupied had they sold the property themselves. Giulia's father was non-resident, so his estate was treated as a non-resident vendor for this transaction, even though Giulia herself lived in Ontario and was administering the estate entirely from home. The residency that matters for this rule is the deceased's, not the executor's.

Without a certificate in hand at closing, Kasia's lawyer would have been obligated to hold back roughly a quarter of the gross sale price and remit it to the CRA as security, whether or not the estate actually owed anywhere near that much tax. The property was expected to sell for around $420,000. A full 25% holdback on the gross price would have tied up roughly $105,000 of the estate's money, with no fixed date for its return.

Getting that money released would have meant waiting for the CRA to process the estate's tax return for the year, confirm the actual gain, and issue a refund of the excess months later, likely well into the following year. For two beneficiaries who were relying on their share of the proceeds and had not been told any of this was coming when they listed the property, a year-long wait for a refund on money that was never really owed would have been a serious and avoidable setback. Neither Giulia nor Antonio had budgeted around that kind of delay, and Giulia was uneasy about explaining it to Antonio after the fact.

The better path, and the one available under the same rules, was to apply for the compliance certificate before closing, based on the actual gain the estate expected to realize, rather than let the full withholding happen and try to sort it out afterward.

What we did

1. Confirmed the non-resident status and its consequences early. As soon as the file came in, we established that Giulia's father had been non-resident at the time of his death, which meant the estate — not just any individual buyer or seller — inherited the withholding exposure on the property sale. We explained this to Giulia and Antonio in plain terms before the listing went further, so neither of them was blindsided later.
2. Calculated the estate's adjusted cost base for the property. The amount that actually matters for withholding purposes is the estate's gain, not the sale price. We worked out the property's value at the date of death, which becomes its cost base for the estate, and compared it to the expected sale price. The gap between the two was modest, since property values in the area had not moved much in the months since the death.
3. Filed the certificate application well ahead of closing. The request to the CRA has to include supporting documentation — the agreement of purchase and sale, evidence of the cost base, and details of the estate — and processing is not instant. We submitted the application as soon as a firm sale price was in hand, giving the CRA the full runway available before the closing date rather than scrambling at the last minute.
4. Negotiated an interim holdback with the purchaser's lawyer. Because certificate processing does not always finish before closing, we arranged with Kasia's lawyer that if the certificate had not yet arrived, the holdback at closing would be calculated on the estimated gain rather than the full gross price, with the balance held in trust pending the certificate rather than sent to the CRA outright. This kept far more of the proceeds available to the estate in the meantime, and kept the transaction itself on schedule.
5. Resolved a discrepancy in the closing cost calculation. When the certificate came through shortly before closing, it set out a holdback based on a gain calculation that differed from ours by close to $12,000, largely because the CRA's initial figure did not credit certain selling costs the estate was entitled to deduct. We provided supporting documentation for those costs and requested a revised figure, which the CRA accepted before the funds were remitted.

The outcome

The certificate arrived four days before closing, in time to avoid the full 25% withholding altogether. The final amount remitted to the CRA on account of the estate's tax reflected the actual gain on the property, not the gross sale price, and the corrected cost figure meant the estate kept the roughly $12,000 that would otherwise have been withheld unnecessarily on account of costs the CRA had initially missed. The rest of the proceeds flowed to the estate at closing in the ordinary way, through the usual trust accounting between the two law firms.

Giulia and Antonio received their shares within the estate's normal administration timeline, with no months-long wait for a CRA refund and no surprise about where a quarter of the sale price had gone. The estate still owed some tax on the gain, which it paid as part of its final return for the year, but the amount was proportionate to the actual increase in the property's value since Giulia's father's death, not an inflated placeholder based on the full sale price that would have sat with the CRA for months regardless of what the estate actually owed.

Because the certificate came through before closing rather than after, Kasia's purchase was never at risk either. Her lawyer had the documentation needed to satisfy the withholding obligation on the purchaser's side without delaying the deal, which meant the sale closed on the original date agreed in the contract, with none of the parties needing an extension.

The case closed with the estate's final distribution completed within a normal timeframe for an Ontario estate of this size, rather than being held up for months waiting on a refund that, with earlier planning, should never have been necessary in the first place. Giulia was able to explain the full picture to Antonio before closing rather than after, which mattered to her as much as the dollar figure did.

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