1017 / What is the effect of a disposition of Canadian real property in respect of a U.S. individual that is not a Canadian resident for tax purposes?

Real property is generally considered taxable Canadian property.¹ The disposition of taxable Canadian property may lead to a tax liability under the ITA where a capital gain results from the disposition. A non-resident may be liable to pay tax on the capital gain notwithstanding the application of the Canada- U.S. Tax Treaty. In the first instance, there is a requirement under the Canada- U.S. Tax Treaty for the purchaser (who is purchasing property from a non-resident) to withhold taxes from the sale proceeds and deliver only the balance of the sale proceeds to the vendor. However, under Article XIII(3) of the Canada- U.S. Tax Treaty, a capital gain on the disposition of real property will likely be exempt from Canadian tax but subject to U.S. taxation if:

1. The Canada- U.S. Tax Treaty applies to the parties of the transaction;


2. At the time of the disposition, the property is subject to the Canada- U.S. Tax Treaty, and the property disposed of qualifies as treaty-protected (generally this is property that is not a resource property); and


3. The purchaser files with the CRA the appropriate notice. The non-resident will need to complete CRA Form T2062: Request by a non-resident of Canada for a certificate of compliance related to the disposition of taxable Canadian property.²