{"id":591,"date":"2018-12-04T22:34:49","date_gmt":"2018-12-05T03:34:49","guid":{"rendered":"http:\/\/www.nrtax.ca\/?p=591"},"modified":"2018-12-04T22:34:52","modified_gmt":"2018-12-05T03:34:52","slug":"avoid-unexpected-tax-on-real-estate-purchases","status":"publish","type":"post","link":"https:\/\/www.nrtax.ca\/fr\/taxadvice\/avoid-unexpected-tax-on-real-estate-purchases","title":{"rendered":"Avoid unexpected tax on real estate purchases"},"content":{"rendered":"\n<p class=\"has-medium-font-size\"><strong>Buying from a non-resident requires careful planning <\/strong><br><\/p>\n\n\n\n<p>By: Jamie Golombek | October 15, 2018 | 17:14 <br><\/p>\n\n\n\n<ul class=\"wp-block-gallery alignwide columns-1 is-cropped wp-block-gallery-1 is-layout-flex wp-block-gallery-is-layout-flex\"><li class=\"blocks-gallery-item\"><figure><img loading=\"lazy\" decoding=\"async\" width=\"534\" height=\"402\" src=\"http:\/\/www.nrtax.ca\/wp-content\/uploads\/2018\/12\/Capture.jpg\" data-original=\"http:\/\/www.nrtax.ca\/wp-content\/uploads\/2018\/12\/Capture.jpg\" alt=\"\" data-id=\"593\" data-link=\"http:\/\/www.nrtax.ca\/?attachment_id=593\" class=\"wp-image-593 portfolio-lazyLoad\" srcset=\"https:\/\/www.nrtax.ca\/wp-content\/uploads\/2018\/12\/Capture.jpg 534w, https:\/\/www.nrtax.ca\/wp-content\/uploads\/2018\/12\/Capture-300x226.jpg 300w\" sizes=\"auto, (max-width: 534px) 100vw, 534px\" \/><noscript><img loading=\"lazy\" decoding=\"async\" width=\"534\" height=\"402\" src=\"http:\/\/www.nrtax.ca\/wp-content\/uploads\/2018\/12\/Capture.jpg\" alt=\"\" data-id=\"593\" data-link=\"http:\/\/www.nrtax.ca\/?attachment_id=593\" class=\"wp-image-593 portfolio-lazyLoad\" srcset=\"https:\/\/www.nrtax.ca\/wp-content\/uploads\/2018\/12\/Capture.jpg 534w, https:\/\/www.nrtax.ca\/wp-content\/uploads\/2018\/12\/Capture-300x226.jpg 300w\" sizes=\"auto, (max-width: 534px) 100vw, 534px\" \/><\/noscript><\/figure><\/li><\/ul>\n\n\n\n<p>Non-resident clients have different tax considerations than their Canadian-resident counterparts.<br><br>For instance, clients who are non-residents may be subject to withholding tax on\u00a0Canadian dividends received in their non-registered portfolios. Similarly, if they have\u00a0an RRSP or RRIF, non-resident withholding tax will generally apply to their RRSP and\u00a0RRIF withdrawals.<br><br>Non-resident clients who realize a capital gain on the sale of securities or mutual funds\u00a0in their non-registered accounts, however, do not have any tax withheld on such gains\u00a0 since they are not subject to Canadian income tax.<\/p>\n\n\n\n<p>The rules are quite different when it comes to a capital gain arising on the sale of\u00a0Canadian real estate realized by a non-resident. Such gain is subject to Canadian capital\u00a0gains tax and must be reported on a Canadian return.<br><\/p>\n\n\n\n<p>Collecting the Canadian tax owing from someone living abroad, whether in the U.S. or\u00a0overseas, could be practically complex, if not impossible. That\u2019s why the Canadian tax\u00a0system, like others around the globe, has a special rule: if there is a gain from the sale\u00a0of domestic real estate by a non-resident vendor, the purchaser of the property may be\u00a0responsible for the capital gains tax.<\/p>\n\n\n\n<p>To this end, the Income Tax Act requires the purchaser to withhold 25% of the\u00a0purchase price from a non-resident unless the vendor has obtained a clearance\u00a0certi\u00b2cate from CRA indicating that the non-resident has made appropriate\u00a0arrangements to pay the tax.<br><br>If the non-resident doesn\u2019t get a certificate, the Canadian resident purchaser is\u00a0responsible for the 25% tax owing on behalf of the non-resident unless \u201ca\u00e9erreasonable inquiry the purchaser had no reason to believe that the non-resident\u00a0person was not resident in Canada,\u201d the act reads.<\/p>\n\n\n\n<p>A recent tax case (Kau v. the Queen, 2018 TCC 156) illustrates the danger of the\u00a0purchaser failing to withhold the tax.\u00a0<br><br>In June 2011, the taxpayer purchased a Toronto condominium unit from an \u201capparent\u00a0non-resident of Canada.\u201d The transaction was completed without a clearance certificate\u00a0and without the taxpayer withholding 25% of the purchase price. The taxpayer thus\u00a0found himself in Tax Court, liable for $92,000 in taxes (25% of the $368,000 purchase\u00a0price).<br><br>The taxpayer was aware from a prior visit to the condo that the vendor did not live\u00a0there and that it was an investment property. The taxpayer retained a lawyer who\u00a0established, through searches and other preparation work for the closing of the\u00a0transaction, that the vendor had purchased the property in 2009, when his address for\u00a0service was in Danville, California.<br><br>This was the same address for service the vendor gave for the sale of the property. As\u00a0well, the taxpayer\u2019s lawyer was informed that the vendor would be signing the closing\u00a0documents in California.<br><br>Just prior to closing, the vendor signed a one-sentence, unsworn statement before a\u00a0California notary public, stating, \u201cI am not a non-resident of Canada within the\u00a0meaning of [\u2026] the Income Tax Act (Canada) and nor will I be a non-resident of Canada\u00a0at the time of closing.\u201d<br><br><\/p>\n\n\n\n<p>The judge found it curious that the notary stated only that this statement had been\u00a0\u201cDECLARED before me.\u201d There was no reference to the statement being either a\u00a0\u201csworn\u201d or \u201csolemn\u201d declaration or that the statement had been declared under penalty\u00a0of perjury.<br><br>This contrasted with another declaration given the same day, before the same\u00a0California notary public, regarding certain \u201cHST matters\u201d in which the vendor made a\u00a0solemn declaration.<br><br>The issue before the court was whether the taxpayer, through his lawyer, could\u00a0reasonably have concluded that the vendor was, in fact, resident in Canada.<br><br>The judge felt that there were simply too many red\u00a0 flags to accept the unsworn\u00a0declaration as evidence that the vendor was not a non-resident. The taxpayer could\u00a0have asked \u201csimple questions\u201d about the vendor\u2019s permanent address or for a copy of\u00a0the vendor\u2019s driver\u2019s licence.<br><br>In finding the taxpayer liable for the tax, the judge concluded that the law \u201ccalls for and\u00a0deserves more than a brief, baldly stated a\u00b4davit or solemn declaration when there are\u00a0factual red flags potentially suggestive of non-residency.\u201d As the judge further pointed\u00a0out: \u201cThe matter should then be pursued.\u201d<\/p>\n\n\n\n<p><em>Jamie Golombek , CA, CPA, CFP, CLU, TEP is the Managing Director, Tax &amp; Estate Planning\u00a0with CIBC Financial Planning and Advice in Toronto.<\/em> <br><\/p>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Buying from a non-resident requires careful planning By: Jamie Golombek | October 15, 2018 | 17:14 Non-resident clients have different tax considerations than their Canadian-resident counterparts. For instance, clients who are non-residents may be subject to withholding tax on\u00a0Canadian dividends received in their non-registered portfolios. Similarly, if they have\u00a0an RRSP or RRIF, non-resident withholding tax&hellip;<\/p>\n<p><a href=\"https:\/\/www.nrtax.ca\/fr\/taxadvice\/avoid-unexpected-tax-on-real-estate-purchases\" class=\"read-more-link\">Read More &rarr;<\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-591","post","type-post","status-publish","format-standard","hentry","category-taxadvice"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/posts\/591","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/comments?post=591"}],"version-history":[{"count":2,"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/posts\/591\/revisions"}],"predecessor-version":[{"id":594,"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/posts\/591\/revisions\/594"}],"wp:attachment":[{"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/media?parent=591"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/categories?post=591"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nrtax.ca\/fr\/wp-json\/wp\/v2\/tags?post=591"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}