Real Estate -> Buying real estate from a non-resident
Buying Real Estate From a Non Resident
When real estate is purchased from a non-resident of Canada, the non-resident is required to complete and submit a form to Canada Revenue Agency (CRA), along with a tax of 25% of the gain on the property. CRA will then provide a certificate of compliance (T2064 or T2068) to the purchaser and the vendor. If the non-resident vendor does not pay this tax, the purchaser of the property will be liable. Thus, the purchaser may withhold 25% (50% in some cases) of the cost of the property.
In a recent BC Supreme Court Case, Mao v. Liu, 2017 BCSC 226, Tony Liu Notary Corporation was sued by Mao. Mao had been assessed $600,000 by CRA related to the sale, because the seller was a non-resident of Canada. The Notary had handled the closing of the sale and failed to discover that the seller was a non-resident. Thus, the 25% tax was not remitted by the vendors. The Court found in favour of Mao.
Several factors made it seem, without doing sufficient investigation, that the vendors were residents of Canada:
- The vendors had owned the property for 12 years;
- their registered address was the address of the property; and
- there was a history of mortgages against the property in favour of financial institutions in Canada.
When you're buying real estate, or are the agent for the purchaser, get verification that will stand up in Court that the vendor is a resident in Canada, unless it is already known that the vendor is a non-resident.
The above tax applies to some other types of Canadian property besides real estate. For more information on this topic, see the Canada Revenue Agency guide T4058 Non-Residents and Income Tax.
Revised: July 14, 2018
Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved. See Reproduction of information from TaxTips.ca