Real Estate 2025: Increase in withholding taxes for non-resident sellers

From January 1ᵉʳ, 2025, new tax regulations will come into force in Canada, upending real estate transactions involving non-resident sellers. Withholding tax rates, previously set at 37.875% in Quebec, will rise significantly to 52.167%. These changes, including an increase to 35% at the federal level and 17.167% at the provincial level, are designed to strengthen non-resident tax compliance and secure government revenues.

What do these new measures actually mean? Who’s concerned? And above all, how can you anticipate these changes to avoid unpleasant surprises? This article offers you a complete analysis of the situation and practical advice on how to prepare yourself effectively. Whether you’re a seller, notary or broker, this tax reform could well change the face of the real estate market in 2025.

What are the new tax rules for non-resident sellers in 2025?

Starting in 2025, Canada will impose increased withholding taxes on non-resident sellers.

Why is Canada increasing withholding taxes for non-residents?

There are a number of reasons for this development, including :

• Strengthen tax compliance: The government wants to reduce the risk of tax evasion by ensuring that non-residents meet their obligations on real estate profits earned in Canada. According to the Canada Revenue Agency (CRA), withholding taxes ensure that non-residents pay their taxes before leaving the country. (Source: CRA).
  
• Increase tax revenues: Real estate is a lucrative business, and gains made by foreign owners can represent significant tax losses if these profits are not properly taxed. With rising rates, Canada hopes to secure a larger share of these revenues.
  
• Aligning with other countries: Other jurisdictions, such as the USA and Australia, apply similar withholding taxes to real estate transactions by non-residents. This puts Canada in a competitive position while strengthening its tax policies.
• Stabilize the real estate market: Foreign investment can contribute to real estate speculation and price rises, making home ownership more difficult for local residents. By increasing taxation on non-resident transactions, the government hopes to curb speculation and stabilize the real estate market for Canadians.

These adjustments reflect the government’s desire to maintain a fair tax system, while protecting local revenues. This reform is likely to make transactions more complex, especially for non-resident sellers.

New withholding tax rates for non-resident sellers in 2025

From January 1ᵉʳ, 2025, real estate transactions involving non-resident sellers in Canada will be subject to significantly increased withholding tax rates. These new rules are designed to strengthen tax compliance and recover a larger share of the gains made by foreign sellers.

1. Federal rate: The rate rises from 25% to 35%, an increase of 10%. This amount is deducted from the gross proceeds of the sale, even before net profits are calculated (Canada Revenue Agency (CRA)).
   
2. Provincial rate (Quebec) : The rate rises from 12.875% to 17.167%, an increase of 4.292%. This rate is added to the federal withholding tax, bringing the total to 52,167 % for transactions in Quebec. (Source : Revenu Québec).

Find out more about the situation in the table :

Year	Federal withholding rate	Provincial withholding rate
2024	25%	12,875%
2025	35%	17,167%

Example: Gross sales: $500,000

• Federal withholding (35%): $175,000.
• Provincial withholding (17.167%): $85,835.
• Total holdback: $260,835 on $500,000.

Impact: Non-resident sellers will receive less than 50% of the proceeds of their sale until their tax situation has been regularized with the authorities.

Other key aspects of the new rules :

1. Mandatory certificate of compliance: Sellers must obtain a certificate from the CRA and, in Quebec, from Revenu Québec to justify their tax situation. This can help reduce or avoid excessive restraint.
2. Strict deadlines: Certificate applications must be submitted within 10 days of the transaction. Failure to do so may result in substantial penalties.
3. Buyer’s liability: If deductions are not made correctly, the buyer may be held liable for amounts due. Notaries and brokers therefore play a crucial role in ensuring that the transaction complies with regulations.

These new rules, though ambitious, require rigorous preparation to avoid administrative complications or delays in the transaction. Putting them into practice is a challenge not only for sellers, but also for real estate professionals.

Who is considered a non-resident vendor in Canada?

Defining a “non-resident seller” is essential to understanding who will be affected by the new tax rules in force from 2025. This designation is based on tax criteria established by the Canada Revenue Agency (CRA) and Revenu Québec, and includes several categories of individuals.

1. Definition of a non-resident

A non-resident is a natural or legal person who :

• Not ordinarily resident in Canada.
• Does not qualify as a tax resident under Canadian law.
• May have a limited connection with Canada, such as real estate or investments, without living here permanently.

Example: A person who lives abroad for work or family reasons and owns property in Canada is considered a non-resident if he or she is not taxed as a resident of Canada.

2. Canadians living abroad

Canadians who live outside the country but sell a property in Canada may also be classified as non-residents.

Tax residency is determined by several criteria, such as :

• Length of stay abroad.
• Economic and social links in Canada (bank accounts, family, etc.).

Even if these individuals hold a Canadian passport, they will be subject to the same rules as foreigners if their tax status is that of a non-resident.

3. Foreign companies and investors

Foreign companies or entities holding real estate in Canada are also considered non-residents.

This includes companies incorporated abroad or registered in offshore jurisdictions. The same withholding taxes (35% federal, 17.167% provincial) will apply to the sale of their assets.

4. Exceptions and special cases

Certain categories of persons or entities may not be considered as non-residents, even if they are physically resident abroad:

• Temporary workers or international students: These can be tax residents if they meet the criteria for residency in Canada.
• Diplomats or international employees in Canada: They may be exempt from certain deductions, but must prove their status.

5. How to determine your tax status and why it’s important

For individuals: Use CRA tools to verify your tax status, or consult a tax specialist to clarify the implications of your residency.

For companies: Provide legal and tax documents to CRA or Revenu Québec to determine your classification.

Being classified as a non-resident has major tax implications:

• Immediate application of withholding tax.
• Obligation to obtain a certificate of conformity to avoid penalties.
• Increased responsibility for purchasers, who must ensure that they comply with restraint obligations.

Sellers and their advisors therefore need to fully understand their tax status before committing to a transaction. This preparation is key to avoiding administrative or financial surprises.

What tax procedures must a non-resident seller follow to sell a property in Canada?

The sale of a property by a non-resident seller in Canada involves a series of strict tax procedures. These obligations are designed to ensure that the seller correctly pays the taxes associated with the transaction. Here are the essential steps to follow to comply with Canadian tax regulations.

1. Obtain a certificate of compliance from the CRA

This certificate confirms that the non-resident seller has correctly declared the sale and that the applicable taxes have been calculated.

Without this certificate, the purchaser may be liable for amounts owing to the Canada Revenue Agency (CRA).

Application:

1. Submit a request for a certificate of compliance within 10 days of closing the transaction.
2. Include the following information:
   • Sold property details
   • Sale price
   • Calculation of realized capital gains.

Consequences of non-compliance :

Significant penalties may apply, in addition to the maximum withholding of 52.167% (35% federal and 17.167% provincial).

Source : Agence du revenu du Canada – Sale of property by non-residents.

2. Mandatory withholding tax on transaction

Role of the buyer and the notary :

• The buyer is legally obliged to withhold a percentage of the gross selling price (52.167% in Quebec) until the certificate of conformity has been issued.
• The notary ensures that this deduction is applied and forwarded to the tax authorities.

Example: For a property sold for $600,000, the buyer must withhold :

• 210,000 (35% federal).
• 103,002 (17.167% provincial).
• Total retained: $313,002.

3. Declare the capital gain

What is a capital gain?

This is the difference between the selling price and the original acquisition cost (adjusted for eligible expenses such as renovations).

Obligations of the non-resident seller :

• Report this gain on a Canadian income tax return for the year of sale.
• Pay the corresponding taxes if the gain is taxable.

4. Anticipate administrative delays

Dealing with the CRA and Revenu Québec can take time.

• Typical lead times: 4 to 8 weeks to obtain certificate of conformity.
• It is advisable to start the process as soon as you have decided to sell.

5. Call in the professionals

Why ?

• Tax rules for non-residents are complex and can vary from case to case.
• Calling on the services of a tax specialist or real estate advisor allows you to :
• Avoid administrative errors.
• Reduce withholding tax with optimal strategies.

Role of notaries and brokers :

• Inform parties of their tax obligations.
• Help the seller with administrative formalities.

Approach summary :

1. Request the certificate of conformity within 10 days of the sale.
2. Apply mandatory withholding tax.
3. Report capital gains on your annual tax return.
4. Allow sufficient administrative time.
5. Consult experts to avoid mistakes.

These steps are crucial to avoid penalties and ensure that the transaction complies with Canadian tax laws. Rigorous preparation is essential to ensure a smooth sale that complies with regulations.

What impact will this new tax system have on the real estate market?

The increased withholding tax of 52.167% for non-resident sellers starting in 2025 will have a major impact on the Canadian real estate market:

1. Less foreign investment

Rising deductions will make the market less attractive to foreign investors, reducing demand in cities like Toronto and Vancouver.

2. Price stabilization

A reduction in real estate speculation could slow price rises or even bring them down, increasing affordability for local buyers.

3. Slower transactions

Non-resident sellers may postpone sales to avoid new deductions, leading to a drop in transaction volumes after 2025.

4. Pressure on professionals

Notaries and brokers will have to manage more complex procedures, while sellers will adjust their prices to remain competitive.

The measure is intended to strengthen tax fairness and stabilize the market, but it risks curbing foreign investment and could redistribute opportunities to local residents.

Conclusion

The increase in withholding taxes for non-resident sellers to 52.167% as of 2025 is shaking up Canada’s real estate landscape. This reform, designed to strengthen tax compliance and limit real estate speculation, could curb foreign investment while making home ownership more accessible to local residents.

However, these new rules impose complex tax procedures and increased pressure on non-resident sellers, as well as an increased need for support from real estate professionals. Whether you’re a buyer or a seller, anticipating these changes will be essential to the success of your transactions.

Vous souhaitez vendre ou acheter un bien immobilier en 2025 ? Contactez notre équipe de courtiers immobiliers Montréal.

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