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Cindy Stanley Realty Blog › Canadian Real Estate Legislation

House buyer beware: Landmark B.C. court ruling will shake real-estate industry


house buyer beware  landmarkA B.C. Supreme Court ruling will send shock waves through the arm of the Canadian real-estate market that is powered by foreign capital, say immigration lawyers.

The ruling targets a weakness in Canadian laws that often leads foreign owners of real estate in cities such as Metro Vancouver and Toronto to claim they are “residents of Canada for tax purposes” when they are not.

The landmark B.C. decision requires notary public Tony Liu to pay his client more than $600,000 because Liu failed to adequately determine whether the Vancouver house his client was buying for $5.5 million had been owned by a tax resident of Canada.

As a result, the Canada Revenue Agency did not get paid, at the time of the sale, the 25 per cent capital gains tax it charges non-resident sellers of Canadian property on any profit they make on the sale.

So the CRA later demanded the buyer pay the $600,000 in tax. The buyer, in turn, sued Liu, arguing Liu failed to discover the seller was not a tax resident of Canada.

The CRA considers people who don’t live in the country at least six months a year and don’t pay income taxes here to be foreign property investors and speculators and thus subject to capital gains taxes.

Three Canadian immigration lawyers said the CRA tax-residency rule is often not enforced, even in overheated housing markets in Vancouver and Toronto that are in part fuelled by offshore money.

The complex ruling published this month by B.C. Supreme Court Justice Kenneth Affleck strikes to the heart of a gaping hole in Canadian tax, immigration and property-transfer law, say the immigration lawyers.

The B.C. decision is a stark warning to real estate agents, notaries and lawyers who fail to ensure that sellers of properties are truly tax residents of Canada, said David Lesperance, a tax and immigration lawyer based in Toronto.

“This truly is a game changer,” said Vancouver immigration lawyer Richard Kurland.

“It’s a precedent. Real estate agents can now get a knock on the door from the taxman, asking for the (capital gains) taxes that should have been collected by Ottawa, because the agent failed to make adequate inquiries.”

Sam Hyman, a Vancouver immigration lawyer, said the judge’s decision alerts purchasers to “the dire consequences” of making offers on properties sold by people who may be trying to avoid capital gains tax by falsely declaring they are tax residents of Canada.

Many buyers and their agents, Hyman said, are not being diligent in making sure the seller is a physical or tax resident of Canada, while others are being “cavalier” or “engaging in wilful blindness” about it.

The immigration lawyers urged the B.C. government to end the “honour system” that leaves it largely up to sellers to state on real-estate-industry forms whether or not they are residents of Canada for tax purposes.  

They said the honour-system loophole could be fixed through Ottawa and Victoria agreeing to the sharing of information among the CRA, the federal Immigration Department and the arm of the B.C. government responsible for property sales.

The B.C. Liberals, Kurland said, have stubbornly refused to solve the costly problem by reforming the government’s property-transfer forms to require sellers to answer whether they are “a tax resident of Canada.”

The B.C. government, which last summer brought in a 15 per cent tax on foreign buyers to cool Metro Vancouver’s globalized real estate market, recently began to ask property sellers and buyers to answer, “What is your citizenship?”

But citizenship is “as irrelevant as eye colour,” Kurland said.

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by Douglas Todd (Vancouver Sun)
Published: March 24, 2017


Government to introduce a 15 per cent foreign buyer tax effective August 2


The provincial government will implement a 15 per cent foreign buyer tax on all residential transactions effective August 2, 2016. The tax will be added to the Property Transfer Tax and will apply to all residential properties purchased by foreign nationals or foreign-controlled corporations.
The new tax will be payable on applicable transfers registered with the Land Title Office on or after August 2 regardless of when the deal was completed.
The tax will apply to any transferee that is a foreign national, foreign corporation, or taxable trustee. Foreign nationals are defined as people who aren’t Canadian citizens or have permanent resident status in Canada.
“Housing affordability concerns all of us who live in the region. Implementing a new real estate tax, however, with just eight days’ notice and no consultation with the professionals who serve home buyers and sellers every day needlessly injects uncertainty into the market,” Dan Morrison, Board president said. “Government has had a long time to take action on the affordability issue, yet they decide to bring this new tax in over a long weekend, with no notice, and no time to prepare. It would have been prudent to seek consultation from the people most knowledgeable about the impact.”
Under the new tax, for example, a foreign buyer or foreign-controlled entity will pay an additional $300,000 in tax on a $2 million home.
“To minimize short-term volatility in the market, we’re calling on government to exempt real estate transactions that are in the process of closing from this new tax,” Morrison said.  
Foreign corporations are any corporation not incorporated in Canada, or are incorporated in Canada but controlled in part, or wholly, by a foreign national or corporation. Publicly traded companies are excluded.
Commercial properties are excluded, and mixed-use properties will only pay the tax on the portion of the property’s value that’s for residential use.



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