Court ruling in BC, could change how we look at Real Estate

1 comment

By , Broker of Record

I will be paraphrasing parts of an article by Douglas Todd, of the Vancouver Sun.

 

A BC Supreme Court ruling will change the way we as Real Estate practitioners look at transactions in Canada. Our market has been uber hot for the past year or so, fueled by foreign buyers. In a nut shell, here is my take on the situation:

Seller A, lists his home for sale with ABC Realty. He tells his agent that he’s a Canadian resident. The listing agent says Okay were good. ¬†– note- this is how we’ve always done things.

Buyer B, makes an offer on the property without his agent checking out if Seller A complies with Canadian tax laws, not whether or not he’s a resident. Seller A sells the property to Buyer B. The deal closes and Seller A takes off to the far reaches of the globe. The recent court ruling states that because the agent working for Buyer B didn’t do the correct legwork to identify Seller A’s tax status, Buyer B in this case owes Revenue Canada the capital gains tax owing, $600K in this instance. Buyer B sues his agent, who is now on the hook for $600K.

Here is the crux of the matter. It isn’t worth a hill of beans what a Sellers residency is. The important issue is if he is or is not a Canadian Tax payer, that this is his principle country for paying taxes in.

As ¬†Real Estate Broker, I always assumed that it would be the Sellers risk for not declaring his taxes correctly. So, have I asked these questions? No. Now typically, my ethical clients have known that there would be a tax event and have declared this to me. Everything’s good.

A large majority of the time, we don’t see the owners of the houses which we bring our Buyer clients to. For the next little bit, until something is done to correct the situation. I’m going to put a clause in my offers. – Ultimately, I think we will see it as a standard clause in all offers where owners will need to make a statutory declaration that they are indeed Canadian Tax Paying residents.

Here is the clincher. Many of these Sellers are refusing to sign declarations because it could jeopardize their world wide tax situation. In essence, I don’t think that it will put a halt on the market as most of the foreign buyers have no intentions of selling. It will put the kibosh on a lot of the house flipping in the big cities which has been prevalent these past number of years.

Interesting…

Chris Bowron of NOTL Realty

Christopher Bowron

Broker of Record

Read other posts by Chris Bowron

One Comment

  1. Caroline says:

    I’m shocked at this, as Capitol Gains is part of your ‘personal income tax’ declarations. So I am unclear as to why the new owner would be responsible for someone else’s personal tax responsibilities, regardless of tax paying or residency status. I would think it is the Government of Canada’s / Revenue Canada’s responsibility to ensure all home owners are in fact responsible for their own taxes.

    The only assumption I can make, is that this has been viewed as similar to the HST included/excluded situation, and that a standard clause would state that any potential Capitol Gains or taxes owing as a result of the transaction are the responsibility of the Seller (or Buyer, if that is the case)?

    And, if this is correct, wouldn’t / shouldn’t this have been part of the work the lawyers do on or before closing?

    You are correct….a very interesting….

    Thanks for posting.

    PS – $600K in Capitol Gains…geez…how much was the house!?

Leave a Reply

Your email address will not be published. Required fields are marked *