If you buy taxable Canadian property from a non-resident without a certificate, then you are required to withhold 25% of the purchase price and remit it to the CRA. If you do not, you can be assessed for this amount.
To avoid having you withhold this 25%, the non-resident can apply to the CRA for a “section 116 certificate”, which relieves you from the withholding obligation. The non-resident must calculate the amount of tax payable on the gain, and pay that amount to the CRA, in order to get the certificate.
In the recent Kau case (2018 TCC 156), Kau bought a condo from Yekta. Yekta’s address was in California, and Yekta signed the closing documents in California, which should have raised a red flag. Yekta provided a one-line unsworn affidavit (“declared” before a California notary public) saying he was not a non-resident of Canada. Kau’s lawyer, and thus Kau, accepted this, and paid the full balance to Yekta on closing.
When it turned out Yekta was indeed non-resident, the CRA assessed Kau for $92,000, which was 25% of the purchase price. Kau appealed to the Tax Court of Canada, but this appeal was dismissed. So be very careful about purchasing real estate from someone who might be non-resident!