What if your application for a Certificate of Compliance (T2062) is late when selling real estate in Canada?

When a non-resident sells real estate in Canada, a T2062 Form must be filed to obtain a Certificate of Compliance from the Canada Revenue Agency (CRA) within 10 days of the sale.

As its name suggests, this certificate ensures the tax compliance of the transaction, while limiting the withholding tax to the actual capital gain, rather than the total sale price.

But what happens if the certificate is not requested on time? Here are the possible consequences and the steps to take.

1. Inform the notary or lawyer immediately

If the certificate of compliance is not yet available at the time of the sale, notify your notary or lawyer. By default, they are legally required to withhold 25% (or up to 62.875% depending on the circumstances) of the gross sale price and send it to the tax authorities.

2. Submit Form T2062 as soon as possible

Even if you are late, you can still file Form T2062. The tax authorities will process the application, but you may have to pay penalties.

Consequences of late filing

• Penalty of $25 per day of delay, up to a maximum of $2,500

• Interest on the withholding that was payable, if no withholding was collected at the time of the sale.

3. Recover Overpayments Through Annual Tax Returns

After the sale, you will need to file a Canadian non-resident income tax return. This will allow you to:

• Report the transaction

• Adjust the capital gains tax instead of the sale price

• Claim a refund of any overpayment

4. Practical Tip

If you are late, still file an incomplete application along with an explanatory letter. You can submit the missing documents later. This approach can reduce processing times and demonstrate your good faith to the tax authorities.

Working with a specialized tax firm as early as possible in the sales process ensures the transaction's tax compliance and helps avoid unpleasant surprises along the way.

In summary

• Without a certificate, the notary or lawyer must withhold between 25% and 62.875% of the gross sale price.

• File Form T2062 promptly, even if late, to minimize penalties.

• File your annual income tax return to recover any overpayment.