A non-resident seller's shares trigger a specific withholding regime, and it has more than one way to satisfy it.
Short answer
Yes, by default — buying taxable Canadian property from a non-resident without a section 116 certificate makes you personally liable to withhold and remit 25% of the excess of your cost over the certificate limit. But that default has real exceptions, including a notice route that lets you skip the certificate entirely if the property is treaty-protected.
Income Tax Act s.116(5) is the default rule: a purchaser who acquires taxable Canadian property from a non-resident, without a certificate or one of the listed exceptions, “is liable to pay, and shall remit to the Receiver General within 30 days after the end of the month in which the purchaser acquired the property, as tax under this Part for the year on behalf of the non-resident person, 25% of the amount” by which the buyer's cost exceeds the certificate limit — recoverable from the non-resident seller afterward.
One of the listed exceptions is a genuine alternative, not just a defence. s.116(5.01) applies where the purchaser “concludes after reasonable inquiry that the non-resident person is, under a tax treaty that Canada has with a particular country, resident in the particular country” and the property “would be treaty-protected property of the non-resident person” on that residency, provided the purchaser “provides notice under subsection (5.02)” — filed within 30 days of the acquisition, not obtained before it.
Whether the shares even qualify as treaty-protected turns on the domestic taxable-Canadian-property test first. Under the Income Tax Act's s.248(1) definition, private-company shares are taxable Canadian property if more than 50% of their value came from Canadian real property in the preceding 60 months — a fact that can flip on a single pre-closing transaction inside that window, such as a sale-leaseback of the company's own building.
Where the seller is resident in a country with no relevant treaty article, or the company genuinely is real-property-heavy, the notice route is not available and a certificate (or a closing holdback) is the only way to close cleanly.
A 30-minute call is enough to tell you which of these facts applies to your deal.
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