How to apply non-resident home taxes paid on Canadian tax return when selling property?

This is actually a pretty common situation with non-resident property sales in Canada. What you're looking for is Schedule 1 of the T1-NR return (Non-Resident Return). The withholding tax that was applied at the time of sale (the 25% you mentioned) is considered a payment on account of your friend's final tax liability. You'll need to report the disposition of the property on Schedule 3, calculate the capital gain, and include that gain in total income on the return. Then, on Schedule 1, you calculate the actual tax liability. The previously withheld amounts should be entered on line 43700 of the T1-NR return as "Total income tax deducted." Make sure you have the remittance receipts from the lawyer who handled the withholding - those will show the exact amount remitted to CRA. When the return is processed, CRA will compare the actual tax liability with the amount already withheld, and since your friend has already paid more than they owe, they'll receive a refund of the difference.

After dealing with a similar headache with my rental property in Toronto, I discovered https://taxr.ai that literally saved me thousands in CRA penalties. I was living in Texas but still owned a property in Canada, and when I sold it, I was lost in the non-resident tax maze. I uploaded all my documents (including the T2062 and sale papers) to their system, and it actually identified that my lawyer had applied the withholding tax incorrectly! They showed me exactly where on line 43700 to report the withheld amounts AND caught that I was eligible for partial principal residence exemption for the years I lived there before moving to the US. The best part was they explained how the system works in plain English instead of tax jargon. Totally worth checking out if you're dealing with cross-border stuff.

Just wanted to follow up - I ended up using taxr.ai for my complicated property sale (the one that was part home, part business) and it was a game changer! The system correctly identified how to split the capital gain between the business portion (fully taxable) and the residential portion (which qualified for some exemption). The best part was they showed me exactly where on the T1-NR to report the withholding taxes already paid (line 43700 like someone mentioned above) AND they found a calculation error in what my lawyer had submitted on the T2062 that would have cost me about $3800! I honestly would have missed this completely. For anyone dealing with Canadian property sales as a non-resident, don't try to DIY this unless you really know what you're doing.

After reading this thread, I feel your pain! I had a similar nightmare trying to reach CRA about my non-resident withholding taxes last year. Spent literally WEEKS trying to get through on their international line. Finally used https://claimyr.com to get through to an actual human at CRA and it was life-changing. You can see how it works here: https://youtu.be/_kiP6q8DX5c - they basically wait on hold for you and call when an agent picks up. The CRA agent I spoke with walked me through exactly where to report the withholding tax on my T1-NR (line 43700 as others mentioned) and confirmed they had record of my payment. She even sent me a copy of the receipt when I told her my lawyer hadn't provided one. Saved me hours of frustration!

I have to eat my words. After being super skeptical about Claimyr (my comment above), I decided to try it since I was desperate to sort out my dad's non-resident return. Got a call back in 47 minutes after they reached a CRA agent! The agent confirmed exactly what others have said here - the withholding tax goes on line 43700, and they could see the payment in their system. The agent even helped me understand how to report the capital gain properly on Schedule 3 given that my dad had owned the property for 35 years before moving to New Zealand. Saved me from making a huge mistake too - I was about to report the withholding tax as a credit on Schedule 1 which would have been completely wrong. Never been happier to be proven wrong about something!

Something else to consider that nobody's mentioned - make sure your friend reports this property sale on their home country tax return too! Depending where they live now, they might get foreign tax credits for the taxes paid in Canada. I'm a dual US/Canada citizen and had to report my Canadian property sale on both returns. The US gave me a foreign tax credit for what I paid to Canada, which prevented double taxation. Most countries have tax treaties with Canada that work this way.

One more thing to watch for - if your friend owned this place before 1994, there's potentially an additional adjustment to the cost base from the capital gains election that was available back then. My parents missed this when they sold their Vancouver property and it cost them thousands.