How to Get a Non-Resident Tax Clearance Certificate: Forms and Timing

To get a non-resident tax clearance certificate, a foreign seller applies to the tax authority in the country where the property sits — the IRS in the United States using Form 8288-B, or the Canada Revenue Agency using Form T2062 (and T2062A where required) under Section 116 of the Income Tax Act. The certificate tells the buyer how much, if anything, to withhold from the sale proceeds based on the seller’s actual expected tax, instead of the flat statutory rate calculated on the full sale price. Filed early and with complete documentation, it turns a large withholding into a much smaller one and lets the seller walk away from closing with most of their money.

The stakes are set by the default rules. In the U.S., a buyer must withhold 15% of the total sale price when a foreign person sells a U.S. real property interest under 26 U.S.C. § 1445.¹ In Canada, the buyer withholds 25% of the sale price for most capital property, and 50% for depreciable, timber, and resource property, unless a certificate limits the amount.² Because those percentages apply to gross proceeds, not the gain, the withholding routinely exceeds the actual tax owed by a wide margin. The certificate is the mechanism that closes that gap.

Applying in the United States: Form 8288-B

A foreign seller whose expected U.S. tax is less than 15% of the sale price files Form 8288-B, Application for Withholding Certificate, with the IRS before or at closing.³ The IRS will issue a reduced-withholding certificate if the seller’s maximum tax liability comes in below 15% of the proceeds, or if the transaction qualifies for nonrecognition treatment or an exemption.⁴

Filing before closing changes what happens to the withheld funds. When Form 8288-B is on file with the IRS at the time of transfer, the buyer can park the withheld amount in escrow instead of sending it to the IRS immediately, and then release the balance to the seller once the certificate is issued. If the IRS decides the application was filed mainly to delay payment, interest and penalties start running from the 21st day after the transfer date.⁵

Applying in Canada: Section 116 and Form T2062

Under Section 116 of the Income Tax Act, a non-resident selling taxable Canadian property must notify the CRA before the sale or within 10 days after it.⁷ Taxable Canadian property covers residential homes, commercial buildings, vacant land, and shares in corporations that derive most of their value from Canadian real estate.

The form depends on the property type. Use Form T2062 to request a certificate of compliance for the disposition of general capital property.⁸ If the sale involves depreciable property, resource or timber property, or real property that isn’t capital property, file Form T2062A as well.⁹ A rental building on owned land almost always needs both: the land is capital property, the building is depreciable.

The security you pay to the CRA is calculated on the gain, not the price. For general capital property, 25% is applied to the capital gain figure. For depreciable property, the CRA applies 25% to the capital gain portion and the applicable tax rate to any recaptured capital cost allowance.⁷ Once the CRA is satisfied and the deposit is paid, it issues the certificate of compliance showing the certificate limit, and the buyer’s 25% or 50% withholding only applies to any amount above that limit.

If a tax treaty between Canada and the seller’s home country fully exempts the gain from Canadian tax, the property is treaty-protected and CRA notification may not be required at all.¹⁰ Most Canadian treaties preserve Canada’s right to tax gains on real property, so this exemption rarely covers a house or commercial building sale.

What to Gather Before You File

Both authorities need to see the numbers behind the gain calculation. Assembling the paperwork before you file is what keeps the file moving instead of bouncing back for clarification.

Original purchase records: the signed agreement from when you bought the property, plus closing statements showing the purchase price, legal fees, and transfer taxes.
Capital improvement receipts: invoices for structural work like a new roof, renovated kitchen, or added rooms. Routine maintenance and cosmetic repairs do not count.
The current sale contract, showing price, expected closing date, and buyer information.
Tax identification numbers: an ITIN in the U.S., a Canadian tax number or Individual Tax Number in Canada, for every seller on title.
Depreciation records for any rental or commercial property where capital cost allowance or depreciation deductions were claimed.

The core arithmetic on every application is the same. Sale price minus your total cost basis equals the gain. Cost basis starts with the original purchase price and grows with every qualifying capital improvement. Understate the basis, and the required deposit goes up accordingly.

How Long It Takes

The IRS generally acts on a complete Form 8288-B application within 90 days of receiving all necessary information, including valid taxpayer identification numbers for every party.⁴ Missing an ITIN or leaving fields blank restarts that clock. The CRA’s standard processing estimate for a Section 116 certificate is roughly 120 days once all documents are in hand, and complications like recaptured depreciation, multiple properties in one transaction, or missing receipts push it out further.

The practical consequence: file as early as the rules allow. In Canada, you can notify the CRA before closing. In the U.S., Form 8288-B can be filed before or on the day of transfer. Filing early keeps the withheld funds in escrow rather than forcing the buyer to remit them, which is the difference between a certificate that releases money at closing and one that becomes a refund claim you wait months to collect.

The Tax Return Still Comes Due

The certificate is not the end of the process. A U.S. foreign seller files a federal income tax return for the year of the sale to report the actual gain and reconcile the withholding against the real liability. If the amount withheld exceeded the tax owed, the return is how you claim the refund; if you applied for a reduced certificate and underpaid, the return is where you settle up.

In Canada, a non-resident who obtained a Section 116 certificate may be excused from filing a Canadian return for that year, but only if they had no other Part I tax payable and owed nothing from prior years.⁷ If any of those conditions aren’t met, a return is required. Filing lets you claim deductions or credits that weren’t factored into the certificate deposit, and often produces a refund of part of what you prepaid.

Mistakes That Cost Sellers Money

Doing nothing is the most expensive option. Skip the application, and the buyer remits the full statutory withholding to the government at closing. Your only path to recovering the overpayment is the following year’s tax return. On a $500,000 U.S. sale, that means $75,000 sitting with the IRS for potentially over a year.

Understating your cost basis runs a close second. Every documented dollar of acquisition cost or capital improvement lowers the apparent gain and shrinks the required deposit. Sellers who can’t find renovation receipts should work with an accountant to reconstruct the basis from bank records, contractor invoices, and property tax records before filing.

Filing too close to closing catches sellers repeatedly. With 90-day IRS processing and 120-day CRA processing as baseline estimates, an application submitted a few weeks before closing all but guarantees the full withholding gets remitted. The certificate then becomes a refund claim rather than a closing-day release.

Finally, remember the second layer. Many U.S. states impose their own withholding when a non-resident sells property within the state, on top of the 15% federal amount, and rates vary widely. Check the rules in the specific state or province where the property sits before you set a closing date, not after.

1
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
2
Government of Canada. Income Tax Act – Section 116
3
Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
4
Internal Revenue Service. Withholding Certificates
5
Internal Revenue Service. ITIN Acceptance Agent Program
7
Canada Revenue Agency. Procedures Concerning the Disposition of Taxable Canadian Property by Non-Residents of Canada – Section 116
8
Canada Revenue Agency. T2062 Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property
9
Canada Revenue Agency. T2062A Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Canadian Resource or Timber Resource Property, Canadian Real Property (Other Than Capital Property), or Depreciable Taxable Canadian Property
10
Canada.ca. Disposing of or Acquiring Certain Canadian Property