Mortgage Broker

CmB magazine cmba-achc.ca spring 2017 | 45 n ere is no authority that obtaining the statutory declaration is alone sufficient to amount to a reasonable inquiry. Consider that a seller who is non-resident and intends to move the sale proceeds out of Canada might be inclined to swear a false declaration as to residency. e buyer does not know whether he is dealing with an honest or dishonest seller and so has to, without supporting information, suspect all declarations as to residency. Perhaps the buyer is required to obtain information supporting the declaration. n e seller may be unwilling to provide the statutory declaration. ere is no requirement for the seller to provide it. e seller can, before signing, choose to delete any clause requiring the seller to provide a statutory declaration as to residency. e buyer simply having asked for the statutory declaration almost certainly will not amount to a reasonable inquiry. Possibly, the seller declining the request for a declaration should raise suspicion that the seller is not a resident and the buyer should make further inquiries. n e person handling the sale of the registered owner's interest may be unable to provide the statutory declaration. For example, the person might not be the registered owner but rather a creditor who has obtained a court order to conduct the sale of the property. at creditor might not have sufficient knowledge to swear as to the residency of the registered owner. It would be a prudent step to include in the purchase agreement that the seller is required to provide sufficient proof of residency (including a statutory declaration as to residency) for purposes of the ITA, unless the seller provides a clearance certificate to the buyer. It should be made clear in the agreement that the obligations extend to anyone conducting the sale of the seller's interest. Withholding Tax Amount e buyer has the ability to protect himself or herself from being forced to pay the tax. e ITA authorizes the buyer to deduct or withhold the amount the buyer is to remit to CRA from any proceeds to be paid to the seller. In effect, unless the seller has obtained a clearance certificate, the buyer can remit the tax to the CRA and pay that much less to the seller. It would be prudent to include in the purchase agreement that the seller is required to obtain a clearance certificate from the Minister regarding the transaction, and unless the buyer receives a copy of the clearance certificate, the buyer will be deducting or withholding the amount of tax from the purchase price. is in effect is notice to the seller that the buyer will rely upon the ITA section; it does not add to the buyer's rights but can add certainty to the process of closing the transaction. e ITA states that "no action lies against any person for deducting or withholding any sum of money in compliance or intended compliance with [the ITA]." is is supported by the Mao case; the Court said, "In short if [the buyer's notary] had advised [the buyer] to withhold the necessary tax from the purchase price the [buyer] would not thereby have breached the contract nor risked losing their deposit." Sellers do in these circumstances sometimes claim that the buyer's failure to pay the full price would constitute breach of the contract. It is for the buyer to determine the application of the ITA provision. The ITA gIves The buyer The rIghT To recover from The seller The AmounT remITTed To crA Avoiding Problems Not understanding the steps available when there is a purchase from a non-resident buyer can lead to a number of problems, including: n e buyer might walk away from the transaction if it does not complete on the agreed-upon completion date (this could be risky, as a court might decide that the buyer could have completed the purchase on the scheduled date by withholding the tax amount from the sale proceeds). n e lender for the buyer may cancel funds if they are not disbursed on the agreed-upon funding date. n e seller might not have enough funds to clear title if some of the sale proceeds are directed to CRA. n e creditor with conduct of sale might not have enough funds to pay parties who were expecting payment (including the creditor himself), if part of the funds have to be directed to CRA. n e seller's lender might be unable to fund another transaction if the mortgage is not paid out on the scheduled date. n e foreclosure process can be slowed down while an application is made for an order to have the capital gains tax paid from the sale proceeds. It would be prudent to address matters of capital gains tax as early as possible in the transaction. It creates greater certainty for all parties. Parties are being creative in solutions to "At the end of the day what is needed is clarity, so the risk is not passed to parties (third-party purchasers) who have no authority or capacity to determine the residency of the borrower/nominal title holder. CRA needs to be able to collect taxes, lenders need to be able to have good security for their loans and CMHC's mortgage insurance program needs to be actuarially sound. All of this may require policy, not judicial, remedies." –Ron Usher, General Counsel, The Society of Notaries Public of BC

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