Two Canadian flags hanging in front of a house

*Updated* Is a seller claiming to be a tax resident of Canada telling the truth?

In a recent Vancouver Sun article it was reported that if someone selling a home claims that they are a tax paying Canadian resident, you need to verify that this is in fact true. If your client buys the home from them and it is later uncovered that the seller was lying to avoid paying tax, your buyer becomes responsible for the capital gains tax on the property sale and your client could in turn sue you for the tax that is due.

That’s what happened in a precedent-setting BC Supreme Court case involving a notary public who helped his client buy a home in Vancouver for $5.5 million. The seller had claimed to be a “resident of Canada for tax purposes” and the notary did not verify that this claim was true. The seller had lied.

The client was asked to pay more than $600,000 in capital gains tax to the Canada Revenue Agency on the property sale and the client in turn sued the notary. The BC Supreme Court justice ordered the notary public to pay the more than $600,000 in capital gains tax.

The article also warns that real estate agents could be held responsible if they fail to make adequate inquiries. Please also note that as of March 30, 2017, the Contract of Purchase and Sale on WEBForms® now also provides for the buyer to acknowledge their status as a Canadian citizen or permanent resident.

The CRA charges non-resident sellers of Canadian property 25 per cent capital gains tax on any profit they make on the sale. The agency considers people who don’t live in the country at least six months a year and don’t pay income taxes here to be foreign property investors and speculators and therefore subject to capital gains taxes.

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