How long does a non-resident seller’s clearance certificate take?

The section 116 certificate is issued after the non-resident seller sends notice to the CRA and pays the required amount or furnishes security the CRA accepts. For whether a buyer needs one at all, see our answer on section 116 certificates.

What the law and the CRA say

The Income Tax Act says that once a non-resident seller has sent notice and paid the required amount or furnished acceptable security, the Minister shall forthwith issue the certificate. The CRA’s circular adds that it will issue the certificate at the earliest possible date once the information and documents are validated and acceptable payment or security is received. Neither source gives a number of days.

When notice should go in

A seller may send notice before the disposition, under subsection 116(1). Under subsection 116(3), a seller who disposes of the property must send notice by registered mail not later than 10 days after the disposition, unless an earlier notice under subsection 116(1) meets the conditions in paragraphs 116(3)(d) to (f). The CRA says a vendor should send notice at least 30 days before the property is actually disposed of, to allow time to review the transaction and verify that the payment or security is adequate.

What slows it down

• Personal cheque: the CRA says the certificate is issued once the cheque has cleared.
• Security instead of payment: the vendor should contact the CRA’s Revenue Collections Division at the tax services office to negotiate what it will accept.
• Valuation: where the CRA determines that a detailed appraisal or business equity valuation is required, it will try to set an estimated value, and the CRA says that if the seller pays on that value it will issue the certificate without waiting for a valuation that may take several months.
• Financial statements: the circular says that, to reduce delays, the CRA may request copies of the vendor’s financial statements for the previous year.
• Property classification: excluded property is not subject to the section 116 requirements, and the Act’s definition includes property described in the inventory of a business carried on in Canada, other than real or immovable property situated in Canada, Canadian resource property and timber resource property.

What a buyer can do while waiting

Under subsection 116(5), a purchaser of taxable Canadian property (other than depreciable property or excluded property) is liable for a percentage the Act specifies of the amount by which the purchaser’s cost exceeds the certificate limit fixed by any certificate under subsection 116(2), unless an exception applies, such as having had no reason to believe after reasonable inquiry that the seller was non-resident, or holding a certificate issued under subsection 116(4). Subsection 116(5.3) has a similar rule for property described in subsection 116(5.2), which includes depreciable property that is taxable Canadian property. Under those subsections of the Income Tax Act, the purchaser must remit the tax to the Receiver General within 30 days after the end of the month in which the property was acquired and is entitled to deduct or withhold it from amounts paid to the non-resident seller. The buyer’s lawyer can reflect this in the closing timetable and any holdback.