Section 116 clearance certificate

Section 116 of the Income Tax Act applies when a non-resident sells certain taxable Canadian property, such as real property situated in Canada. The CRA’s IC72-17R6 says the non-resident notifies the CRA either before the disposition or within ten days after it. Once the CRA has received an amount to cover the tax on any gain, or appropriate security, it issues the certificate to the seller and sends a copy to the purchaser.

Why a purchaser cares

The CRA says that if the purchaser does not receive the certificate, the purchaser is required to remit a specified amount to the Receiver General and may deduct that amount from the price. Subsections 116(5) and (5.3) set the conditions and exceptions, including excluded property and a purchaser who, after reasonable inquiry, had no reason to believe the seller was not resident in Canada. Read those sections rather than relying on a summary. The related answer on section 116 withholding walks through the sale.

What to check

• Whether the seller is a non-resident, and whether the property is taxable Canadian property or excluded property
• Whether the certificate has been requested on Form T2062 (or Form T2062A for the property types it covers), and what the agreement says if it has not arrived by closing
• Whether the purchaser named on the certificate is the actual purchaser