What Is a Certificate of Compliance and How to Get It in Canada

A Certificate of Compliance is one of the most important documents a non-resident needs before selling property in Canada. Without it, the buyer’s lawyer must hold back a large portion of the sale money and send it straight to the Canada Revenue Agency. This means the seller cannot access their own funds until CRA processes everything, which can take months. Many non-residents do not know about this requirement until they are already in the middle of a deal, which causes unnecessary delays and stress. 

If you are a non-resident selling property, working with professionals who handle CRA Clearance Certificate in Toronto and across Canada is the smartest move you can make. Tax Return Filers Ltd. helps non-resident sellers manage the full certificate process from start to finish.

What Is a Certificate of Compliance in Canada?

A Certificate of Compliance in Canada is an official CRA document that confirms a non-resident seller has paid their Canadian property sale tax or made a plan to pay it. It is also known as a Section 116 clearance certificate because it falls under Section 116 of the Income Tax Act.

When a non-resident sells Canadian property, CRA is owed tax on any profit made from that sale. The problem is that once the deal closes and the money leaves Canada, CRA has no easy way to collect what is owed. The CRA clearance certificate is how CRA makes sure the tax is taken care of before the funds are released to the seller.

If you close a property sale without this certificate, the buyer’s lawyer is required by law to hold back 25% of the total sale price and send it directly to CRA. This is not 25% of your profit. It is 25% of the full amount the property sold for. On a $700,000 property that means $175,000 held back regardless of how much tax you actually owe.

Who Needs a Certificate of Compliance?

Any non-resident of Canada who sells taxable Canadian property needs a Certificate of Compliance. This includes individuals, corporations, and trusts that are non-residents for Canadian tax purposes.

The most common situations include non-residents selling Canadian homes or commercial properties, non-residents selling shares in private Canadian companies, and non-residents selling partnership interests or resource properties. Canadian citizens who moved abroad and kept property in Canada also fall under these rules when they sell.

One thing many people get wrong is assuming that citizenship and tax residency are the same thing. They are not. A Canadian citizen living in another country can still be a non-resident for tax purposes. That means Section 116 rules apply to them just like any other non-resident when they sell Canadian property.

How to Get a Certificate of Compliance in Canada?

The process has clear steps and strict CRA deadlines. Missing any of them can cause holdbacks and penalties.

Step 1: File Form T2062 With CRA

You apply for the certificate using Form T2062. CRA must receive this form no later than 10 days after the sale closing date. Filing before closing is much better since waiting until after puts you at immediate risk of the full 25% holdback. Getting this form early gives CRA time to process everything before funds are held back.

Step 2: Provide Supporting Documents

Along with Form T2062, CRA needs documents that show what you paid for the property, what you sold it for, and how the capital gain was calculated. This includes your original purchase agreement, closing documents, renovation receipts, and real estate commission invoices. If the submission is incomplete, CRA will ask for more information and the whole process slows down.

Step 3: Pay the Estimated Tax or Post Security

CRA will not issue the certificate until the estimated tax on the gain is either paid or secured. The estimated tax is based on the difference between the sale price and your adjusted cost base after deducting eligible selling costs. Once CRA confirms payment or security, they move forward with issuing the certificate.

Step 4: Receive the Certificate and Get Your Money

Once CRA approves the application and confirms the payment, the Certificate of Compliance goes to the lawyer handling the sale. The lawyer then releases the held funds back to the seller. The whole process can take several weeks to a few months depending on how busy CRA is, which is another reason to file as early as possible.

What Happens After the Certificate Is Issued?

Getting the certificate does not mean the process is completely over. After the sale closes, the non-resident still needs to file a Canadian tax return that reports the final capital gain for that year. This filing is separate from the certificate application and is required even if the estimated tax paid earlier turned out to be accurate.

Tax Return Filers Ltd. takes care of both the certificate application and the final disposition return for non-resident clients. The good news is that many clients actually get a refund after the final return is filed. This happens because the estimated tax paid during the certificate process is often higher than what is actually owed once the final numbers are calculated. Getting that money back requires the final return to be filed correctly and on time, which is something many non-residents miss when they try to handle it on their own.

For non-residents who also earn rental income from Canadian properties, things can get more complicated. Handling Non-Resident Tax Filing and the Certificate of Compliance process together under one roof means every CRA obligation is covered at the same time with no gaps, no missed deadlines, and no loose ends left behind.

Common Mistakes Non-Residents Make

Non-residents often run into the same problems when dealing with a CRA clearance certificate. Here are the three most common mistakes to watch out for:

• Missing the 10-day filing deadline: After your property sale closes, you have just 10 days to file Form T2062 with CRA. Missing this window triggers automatic penalties and delays the release of your withheld funds significantly.
• Underestimating the adjusted cost base: Many sellers forget to include renovation and improvement costs over the years of ownership. Every dollar spent on upgrades reduces your taxable gain, and leaving these costs out means paying more tax than you actually owe.
• Confusing this with other tax payments: Paying annual property tax or obtaining a general tax clearance does not cover this requirement. The Section 116 clearance certificate is a specific CRA obligation that is completely separate from every other tax payment.

For non-residents who are also thinking about Departure Tax Return planning before leaving Canada, getting advice early means both the departure tax and any future property sale obligations can be planned together as one complete strategy.

Conclusion

A Certificate of Compliance is not something non-residents can skip when selling Canadian property. It controls whether your sale proceeds are released or held back at closing. Filing on time, submitting complete documents, and following through with the final return are all steps that matter. Working with a firm that knows this process well means nothing gets missed and your money does not sit with CRA longer than it has to. Tax Return Filers Ltd. handles every step for non-resident sellers across Canada, from the first form through the final tax recovery.

Frequently Asked Questions

1. What is a Certificate of Compliance in Canada?
It is a CRA document confirming a non-resident seller has paid or arranged to pay Canadian tax on a property sale. It is required under Section 116 before sale proceeds can be released without holdback.

2. How long does it take to get a Certificate of Compliance from CRA?
It usually takes several weeks to a few months depending on how busy CRA is and how complete the application was. Filing Form T2062 early gives you the best chance of getting it done before closing.

3. What happens if a non-resident sells Canadian property without a Certificate of Compliance?
The buyer’s lawyer must hold back 25% of the full sale price and send it to CRA. The seller then has to file a return and wait for CRA to refund any excess, which takes much longer than getting the certificate upfront.

4. Do Canadian citizens living abroad need a Certificate of Compliance?
Yes. If a Canadian citizen is a non-resident for tax purposes, Section 116 rules apply to them the same way they apply to any other non-resident selling Canadian property.

5. Can I apply for a Certificate of Compliance before my sale closes?
Yes, and it is the better option. Filing Form T2062 before closing gives CRA time to process the application so the certificate is ready at closing and funds are not held back.