A recent B.C. Supreme Court ruling, Mao v Liu (2017 BCSC 226), creates potential liability for realtors, lawyers, and notaries who deal with property sellers who are non-residents of Canada for tax purposes.
What Happened?
The case involved a notary public who was required to pay the Canada Revenue Agency $600,000 because he did not adequately determine if the house his client was buying was owned by a tax resident of Canada.
As a consequence of this lapse, the CRA did not get paid the tax they were owed and they sought compensation from the buyer.
The buyer then sued the notary.
Why it Matters to You
In a future case there is certainly potential for a notary or client to seek recompense from realtors in a bid to decrease their own liability.
The Canada Revenue Agency considers people who live outside of Canada for at least six months a year and don’t pay income taxes here to be foreign property investors and thus subject to capital gains tax.
CRA charges a 25 per cent capital gains tax on any profit on a property sale that a non-resident seller of Canadian property makes. Keep in mind that a person can be a Canadian citizen and still not be resident in Canada for tax purposes.
While in the past this tax residency rule was often not enforced, that will likely change after this court ruling as hundreds of millions of tax dollars are at stake.
By failing to make proper inquiries or by not paying adequate attention to professional rules and procedures, realtors might be left on the hook.
How can you protect yourself?
As a realtor you must make proper inquiries into your client’s tax residency status.
Ensure that you follow all of the client identification and verification procedures as set out by your professional organisation and always fill out section C Client Risk on the FINTRAC- Individual Identification Information Record, whether your compliance officer recommends it or not.
If you notice anything suspicious make note of it as required by professional rules, willful blindness will not provide any protection.
A prudent move would be for realtors representing buyers to require evidence of the seller’s residency status as a condition of the purchase.
A clause in the purchase contract allowing the buyer’s agent to holdback a portion of the purchase price where the seller’s residency is unknown would also provide a great deal of protection for both the buyer and the buyer’s agents.
Sundeep Gill is a knowledgeable and experienced Real Estate Lawyer in Surrey BC. Please contact him at the Patrola Law office at (778) 565-4700 if you wish to discuss any real estate issues that matter to you.
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