Mortgage Broker

CmB magazine cmba-achc.ca spring 2017 | 43 O Overview Buying Canadian real estate from a non- resident of Canada can cost the buyer 25 per cent (in some cases 50 per cent 1 ) more than if the same real estate was bought from a resident. Similarly, a sale of Canadian real estate by a non-resident of Canada can generate 25 per cent (in some cases 50 per cent) less sale proceeds than would be generated if the same real estate was sold by a resident. ese possible outcomes are the result of the capital gains tax. Not properly planning for the tax can lead to problems such as delays, shortages of funds to complete transactions and even total collapses of transactions. Here, we will inform you as to the tax and suggest some steps you might consider to avoid being taken by surprise. While the article will make you a more informed broker, it is not intended to be legal advice. Tax law can be very complex. You should consult a lawyer to address specific situations. The Tax e Income Tax Act (ITA) requires a seller to pay capital gains tax on profit made from the sale of real estate. is general rule is subject to very few exceptions (such as a Canadian resident selling his or her principal residence). If the seller is a non-resident and fails to pay the tax, the buyer could be required to pay 25 per cent (in some cases 50 per cent) of the purchase price to the Canada Revenue Agency (CRA). Seller Pays the Tax e ITA allows the seller, in advance of the transaction completing, to: n report the upcoming transaction to the Minister of National Revenue (Minister); n pay 25 per cent (or sometimes 50 per cent) of the sale price on account of the tax payable by the seller, or post security to the satisfaction of the Minister; and n obtain a certificate that sets out the amount of sale proceeds the non-resident seller is to receive. Within 10 days of the sale completing, if the facts and amounts are different from those already provided, the seller is to provide updated information and any additional payment or security to cover any increase in the amount of tax due. If the non-resident seller does this, the Minister is to issue a certificate to the seller and send a copy of it to the buyer. Perhaps because the Canada Revenue Agency (CRA) is unable to meet the timelines provided in the ITA, practice does differ from the ITA procedure indicated above. It can take months to obtain a certificate from the CRA and so the CRA provides a comfort letter instead to the seller's lawyer; the CRA does not communicate with the buyer. e comfort letter generally includes the comment that although the ITA provides the following amount of time to remit, you have until a much later date to do so. e seller's lawyer copies the letter to the buyer's lawyer and the two arrange representations as to residency, undertakings concerning holdbacks, obtaining of a certificate, and (if in order to do so) remitting of the tax. No doubt the above ITA process and lawyer's practice are intended to make it more likely that the tax can be collected from a non- resident seller, without the sale proceeds being out of the reach of the CRA. 1 Some examples to which the 50 per cent may apply are commercial, investment and depreciable properties. We will not be discussing details of these categories.

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