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Home Buyers Need To Check Residency Of Home Sellers If They Suspect The Seller Is Not Canadian

When Canadians purchase a home, they are required to withhold part of the purchase price should the seller be a non-resident of Canada.
A recent Tax Court of Canada decision (Kau v. the Queen [2018 TCC 156]) should serve as a warning to clients and professionals alike, to watch for any red flags in the purchase process. As a result, the home buyer has to pay 25% of the purchase price to CRA on top of the original purchase price.
While hindsight is 20/20, the judge suggests that red flags should have lead to further inquiry by the home buyer as well as the buyer’s lawyer.
The following technical overview from of  the court case, outlines that a purchaser and his lawyer failed to adequately ensure the seller of a home was a Canadian resident.
“At issue was whether the taxpayer was liable for the withholding tax on the purchase of a condominium as assessed under s. 116(5) of the ITA for the 2011 taxation year, on the basis that he as the purchaser had, after reasonable inquiry, reason to believe that the vendor was not resident in Canada. The transaction at issue was completed without the vendor having a s. 116(2) or s. 116(5.02) clearance certificate, or the taxpayer having deducted and remitted to the minister, pursuant to s. 116(5)(a), 25% of the purchase price. Specifically, at issue was whether the taxpayer’s lawyer, on behalf of the taxpayer, satisfied s. 116(5)(a) by having made reasonable inquiry resulting in no reason to believe that the vendor was not resident in Canada.
Taxpayer Loses
Appeal dismissed, on the basis that there were red flags signalling a potential that the vendor’s residency was outside Canada and the unsworn affidavit received by the taxpayer’s lawyer, which was signed by the vendor declaring that he was not a non-resident of Canada within the meaning of s. 116, was insufficient to resolve those red flags.


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