Purchasing a home is one of the most exciting milestones in life—but in Ontario, it can come with unexpected risks if the seller is a non-resident of Canada. Many buyers are unaware that they may be held financially responsible for the seller’s unpaid taxes under Section 116 of the Income Tax Act. This section allows the Canada Revenue Agency (CRA) to hold the buyer liable for up to 25% of the property’s purchase price if the seller fails to pay the required capital gains tax.
To protect yourself, it is essential to determine the residency status of the seller early in the transaction. If the seller is determined to be a non-resident, your lawyer must ensure that a Certificate of Compliance is obtained from the CRA before closing. This certificate confirms that the seller has either paid or arranged to pay any taxes owed. If the certificate is not available, the buyer is legally required to withhold a portion of the sale proceeds—typically 25% to 50% of the gross selling price—and remit it to the CRA directly.
This issue is particularly relevant in Ontario’s competitive real estate markets, such as Toronto, Oakville, and Mississauga, where foreign ownership is more common. Failing to address this legal obligation can result in serious financial consequences, including liens or future tax reassessments. Unfortunately, this risk is often overlooked in the rush to close quickly in a competitive bidding environment.
Working with an experienced real estate lawyer is critical. They will conduct the necessary due diligence, communicate with the seller’s lawyer, and file the correct documents to ensure that you, as the buyer, are fully protected. Don’t let an exciting purchase turn into a costly legal issue—make sure your legal team checks the fine print and keeps your investment secure.