RESOURCES

We often act as the lawyers for either the Buyer or the Seller of real estate owned in Canada by Non-Residents of Canada. As a Non-Resident of Canada, tax must be paid on income received from sources in Canada. The type of tax paid and the requirement to file an income tax return depend on the type of income received, therefore an accountant or other tax advisor should be consulted to deal with such taxes. However, the following outlines some of the issues that must
be considered:

 

• Non-Resident individuals and Non-Resident corporations who dispose of real property and are required to notify the Canada Revenue Agency (“CRA”) of the disposition must have a Canadian Taxation number, if an individual, or a business number, if a corporation.

• The Non-Resident Seller must obtain a Certificate of Compliance (“Certificate”) from the CRA as the disposition of property is taxable. If the Certificate is not received prior to the closing date of a sale, then the Seller’s lawyer will usually undertake to hold back 25% of the sale price (50% on certain types of property) in trust until the Certificate is received from the CRA.

• There is usually a few months turnaround time with the CRA once the application for the Certificate is received so the application for the Certificate should be submitted as soon as an agreement of purchase and sale is firm in order to avoid any delay in obtaining the Certificate.

• What is surprising to many Buyers is that the tax liability falls to the Buyer (and thus the Buyer’s solicitor) to ensure the proper amount of the hold back, otherwise the Buyer can become liable to the CRA to pay the Seller’s taxes on the disposition.

• As a result, the Buyer is entitled to withhold 25% (50% on certain types of property) of the proceeds until the Certificate is obtained. The terms of an undertaking will have to agreed upon between the Buyer’s lawyer and the Seller’s lawyer as to which of them will be holding back the necessary funds. The hold back funds will eventually be disbursed in accordance with the Certificate and the undertaking.

 

 

 

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David H. Korman is a Partner at Kormans LLP. His practice areas include residential and commercial real estate transactions, commercial leasing and private and institutional lending. You can reach David at dkorman@kormans.ca.

All blog entries are for your reading pleasure only and are not posted to provide legal advice. For your matter, we encourage you to consult with a lawyer to review and discuss your specific facts and circumstances.