As I deal routinely with non-resident investors wanting to sell Canadian real estate assets, I would like to shed some light on this otherwise somewhat arcane subject. DISCLAIMER: please note that the following essay is presented solely for general information purposes, it is not intended to be legal advice or purported to be as such, it may or may not apply to your particular situation and that I strongly recommend - in fact I urge you - to discuss this topic in-depht further with your lawyer, notary, conveyancer or accountant - and not necessarily in this sequence - if a need there be.
If you are a non-resident involved in the selling of Canadian real estate assets that you own, you should be aware of the applicable provisions of the Income Tax Act to avoid problems when the time comes for the sale to complete. In brief, if taxes are owing to the Canada Customs and Revenue Agency (Revenue Canada) by a property owner, the property can be charged to secure payment of outstanding taxes. This applies to both residents and non-residents. What, however, specifically applies in the case of non-residents selling Canadian real estate is that the property may be charged even after being transferred to the new owner.
In order to be protected and pursuant to the requirement of the Income Tax Act, the Buyer must make a 'reasonable inquiry' as to the Seller's residency status. Thus the need for indicating 'Resident of Canada/Non- Resident of Canada' under the Sellers information in the top left section of the Contract of Purchase and Sale. The Buyer's notary or lawyer will make a similar inquiry of the Seller when the convyancing documents are signed. If the Seller is a non-resident of Canada, he must apply for and obtain a Clearance Certificate from Revenue Canada and provide the Buyer with this Certificate. It normally takes four to six weeks for Revenue Canada to issue a Clearance Certificate. If a Clearance Certificate is not provided to the Buyer or his conveyancing representative, then the Buyer must hold back one-third of the sale price until the Certificate is provided. If the Certificate, furthermore, is not forthcoming the holdback money is then remitted to Revenue Canada and the Buyer - and the newly acquired property - are protected from any further liability or charge.
A problem, moreover, may arise at the time of completion if, for instance, the existing mortgage exceeds two-thirds of the sale price and there are therefore no sufficient proceeds to allow for the holdback and clear title, not to mention payment of closing costs. So therefore, if you are (or will be at the time of completion) a non-resident Seller be sure to raise this issue before the property is sold and there is still time to obtain the required Clearance Certificate. Likewise, if you are the Buyer and you learn that the Seller is a non-resident, be sure there is ample time before completion and possession.
Luigi Frascati
Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.
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