Section 116 Certificates

When a non-resident disposes of “taxable Canadian property” (TCP), unless the vendor has obtained a certificate under section 116 of the Act, the purchaser must withhold and remit a portion of the proceeds to the CRA on account of the non-resident's possible Canadian income tax liability. If the purchaser fails to follow these procedures, the purchaser then becomes liable for the tax. The current system is cumbersome, inefficient and does not take into account gains that are exempt under tax treaties. The Budget proposes to eliminate the need for a Section 116 Certificate after 2008 if:

• the disposition of the TCP by the non-resident is a treaty-protected property, or
• the purchaser, after reasonable inquiry, concludes that the TCP is treaty-protected and that the vendor was resident in that treaty country.

In the first case, a related purchaser must report the transaction to the CRA within 30 days of the disposition. In the second case, all purchasers must report the transaction to the CRA within 30 days after the disposition.

If no Canadian taxes are payable by the non-resident, the vendor may not have to file a Canadian tax return to report the disposition.