Do I need a clearance certificate when buying from a non-resident seller?

This is the federal section 116 certificate, not a provincial document. Section 116 of the Income Tax Act requires a non-resident seller of certain property to notify the CRA, and it puts an exposure on the buyer when the CRA has not issued its certificate of compliance. The buyer does not apply for the certificate. The seller does.

When the rule applies

Taxable Canadian property is wider than land. The CRA’s circular lists real property in Canada, property used or held in a business carried on in Canada, and shares of unlisted corporations whose value comes mainly from Canadian real property or resource property. It says the list is not complete. An asset purchase of a Canadian business from a non-resident can therefore fall within the rule, and so can a share purchase.

What happens without a certificate

The CRA issues the certificate once it has received the tax on the seller’s gain or acceptable security, and it sends a copy to both seller and buyer. If the buyer does not receive one, the buyer must remit a specified amount to the Receiver General and may deduct it from the price. The CRA says a buyer incurs no obligation to pay tax if, after reasonable inquiry, there was no reason to believe the seller was a non-resident. It can also treat a buyer as liable if it believes the buyer knew, or should have known, that the seller was a non-resident, or did not take reasonable steps to find out. Different property carries different amounts, so ask for the current figure.

What is excluded

The circular calls some property excluded property. Section 116 does not apply to it, so the buyer has no liability for it. It includes inventory of a business carried on in Canada, other than real property and resource or timber property, and property that is exempt under a tax treaty.

A different certificate in Ontario

Ontario’s WSIB issues its own clearance certificate, which relieves a principal of liability for a contractor’s unpaid premiums. It is Ontario-specific and has no connection to the federal tax certificate. See what a WSIB clearance certificate is.