How does a non-resident report the sale of a business to the CRA?

Reporting the sale of a Canadian business as a non-resident happens in two layers. A notice under section 116 of the Income Tax Act lets the CRA collect a payment on account of the tax, or take security, and issue a certificate to the seller and the buyer. The seller’s income tax return for the year then settles the final bill.

What must be reported, and when

Section 116 applies when a non-resident disposes of taxable Canadian property, a term that, subject to exceptions in the definition, includes property used or held in a business carried on in Canada. The seller may send a notice before the sale and must send one by registered mail within 10 days after it, unless an earlier notice named the same purchaser, estimated proceeds at least as high as the actual proceeds, and did not report a higher cost base than the seller really had. Excluded property, such as inventory of a business carried on in Canada other than Canadian real property, resource property or timber resource property, sits outside the notice rule, though the CRA says its disposition may still result in tax payable.

Which form to use

The CRA’s circular points sellers to form T2062 for most taxable Canadian property and form T2062A, on the same notification process, for property such as depreciable property and Canadian real property that is not capital property. One sale can need both. The seller signs, attaches the supporting documents the form lists and supplies an identification number: an individual without one applies on form T1261, a corporation on form RC1. A seller who made a section 85 election also files form T2057, or form T2058 for a partnership, with the notification.

Payment, certificate and the return

The CRA expects payment on account of tax, or security it accepts, with the notice, then issues a certificate of compliance to the seller and the buyer. The certificate protects the buyer, but the seller’s final liability is set on the return for the year. The CRA says no return is needed if the seller is a non-resident with no Part I tax payable, owes nothing under the Act for earlier years (apart from amounts it holds adequate security for), and all the taxable Canadian property is excluded property or covered by a certificate. Where a return is filed, the CRA says any excess payment is refunded, or security released, after the return is assessed. A non-resident corporation files a T2 return in certain situations, the CRA says. The buyer’s side is in the clearance certificate answer.