Is a non-resident seller taxed the same as a Canadian resident seller?

The same Income Tax Act applies to both sellers, but it reaches them differently. A resident is taxed on a wide base and a non-resident on a narrower one, and a few reliefs and procedures change with status. Rates are outside this answer; a cross-border adviser should calculate them.

What the Act taxes

Subsection 2(1) taxes the taxable income of every person resident in Canada at any time in the year, and section 3 counts income from a source inside or outside Canada. Subsection 2(3) taxes a person who is not taxable under 2(1) and who, in the year or a previous year, was employed in Canada, carried on a business in Canada or disposed of taxable Canadian property, on taxable income earned in Canada determined under Division D. A seller living abroad is taxed on a Canadian business sale when the sale falls inside that narrower base.

Whether your sale falls inside it

Taxable Canadian property includes real property in Canada and, subject to exceptions in the definition, property used or held in a business carried on in Canada. Under the Income Tax Act’s definition it also includes shares of an unlisted corporation, but only if, at some point in the 60-month period before the sale, more of their value than a threshold the definition sets came directly or indirectly from Canadian real property, resource property, timber resource property or options on or interests in them. So an asset sale of a Canadian business falls inside the base to the extent the assets are taxable Canadian property, while a share sale of an operating company depends on what the company owns. A tax treaty can also exempt the gain: the CRA calls property treaty-protected if all of the income or gain from its disposition is exempt from tax under a tax treaty.

Reliefs that depend on residence

The lifetime capital gains deduction in subsection 110.6(2.1) is limited to an individual, other than a trust, resident in Canada throughout the year, though the CRA treats some part-year residents as resident throughout if they meet its stated conditions. The CRA also says a capital gains reserve generally cannot be claimed if the taxpayer was not resident in Canada at the end of the year or at any time in the following year, so a non-resident paid over several years should ask whether a reserve is available.

Extra process for a non-resident

Section 116 adds a notice-and-certificate step on top of the return, set out in how a non-resident reports a business sale. The CRA also says all resident corporations, apart from a few exempt kinds, file a T2 return every tax year, while non-resident corporations file one in certain situations.