‘Game Changer’ BC Court Ruling Extends Capital Gains Tax Risk To Buyers And Realtors

A B.C. Supreme Court ruling will send shock waves through the arm of the Canadian real-estate market that is powered by foreign capital, say immigration lawyers.
The ruling targets a weakness in Canadian laws that often leads foreign owners of real estate in cites such as Metro Vancouver and Toronto to claim they are “residents of Canada for tax purposes” when they are not.

The landmark B.C. decision requires notary public Tony Liu to pay his client more than $600,000 because Liu failed to adequately determine whether the Vancouver house his client was buying for $5.5 million had been owned by a tax resident of Canada.
As a result, the Canada Revenue Agency did not get paid, at the time of the sale, the 25 per cent capital gains tax it charges non-resident sellers of Canadian property on any profit they make on the sale.
So the CRA later demanded the buyer pay the $600,000 in tax. The buyer, in turn, sued Liu, arguing Liu failed to discover the seller was not a tax resident of Canada.

The CRA 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 thus subject to capital gains taxes.
Three Canadian immigration lawyers said the CRA tax-residency rule is often not enforced, even in over-heated housing markets in Vancouver and Toronto that are in part fuelled by offshore money.

The complex ruling published this month by B.C. Supreme Court Justice Kenneth Affleck strikes to the heart of a gaping hole in Canadian tax, immigration and property-transfer law, say the immigration lawyers.
The B.C. decision is a stark warning to real estate agents, notaries and lawyers who fail to ensure that sellers of properties are truly tax residents of Canada, said David Lesperance, a tax and immigration lawyer based in Toronto.
“This truly is a game changer,” said Vancouver immigration lawyer Richard Kurland.
“It’s a precedent. Real estate agents can now get a knock on the door from the taxman, asking for the (capital gains) taxes that should have been collected by Ottawa, because the agent failed to make adequate inquiries.”

Sam Hyman, a Vancouver immigration lawyer, said the judge’s decision alerts purchasers to “the dire consequences” of making offers on properties sold by people who may be trying to avoid capital gains tax by falsely declaring they are tax residents of Canada.
Many buyers and their agents, Hyman said, are not being diligent in making sure the seller is a physical or tax resident of Canada, while others are being “cavalier” or “engaging in wilful blindness” about it.

– from ‘House buyer beware: Landmark B.C. court ruling will shake real-estate industry’, Douglas Todd, Vancouver Sun, 25 March 2017

12 responses to “‘Game Changer’ BC Court Ruling Extends Capital Gains Tax Risk To Buyers And Realtors

  1. One more nail in the Vancouver RE coffin…

  2. So basically instead of doing their job, CRA is going after the “victims” of the fraud in this case, and require the average buyer to be an fraud investigator. Smells more of being lazy and hitting a local taxpaying citizen than going through the trouble of actually hunting down criminals.

  3. I do not oppose any measure in which involved parties end up with more skin in the game and more to lose.

    Keeps everybody honest and keeps everybody vigilant.

    Helps create an atmosphere and environment in which tax criminals understand that they are not wanted or welcome.

    Because no realtor, lawyer, notary will work with them and no citizen will buy from them.

    WHY DON’T WE HAVE THAT NOW, you ask rhetorically.

    After all, we all suffer directly from tax crime.

    Tax revenue stolen by tax criminals means that schools, hospitals, womens’ shelters, affordable housing, safe injection sites, roads, ferries, ambulances, police, and environmental watchdogs fighting for a smaller pool of provincial and federal funding.

    If someone steals a bicycle from one Canadian and you buy it from them, you are a criminal because you have willingly participated in the transaction.

    Why would it be any different for someone who is trying to steal hundreds of thousands or millions of dollars from all Canadians?

    • uhm..there is a difference between buying stolen goods knowing and unknowingly. If I go to a bike store on Broadway, I have no reason to suspect that the bike I buy will be stolen. If there is rumor that the shop might sell some stolen bikes (say 1 out of 10), how reasonable is it to expect the average person to run police checks, etc on the bike before buying it? It’s the reason we have things like food safety departments, etc because the average person can’t be expected to investigate every transaction they do for potentially illegal things.

      As well, even if I bought a stolen bike and found, I will forfeit it. However, I’m not responsible for paying the victim of the theft damages for loss of its use, etc, etc.

      I believe tax evasion and cheats need to be punished. However, if we are placing onus and responsibility on people, it should be people who are in a position to carry out that responsibility, not on the average everyday consumer who might not even be aware of such things, much less able to fulfill that responsibility. In this case, I think it should be limited to seller’s RE agent, and maybe buyer’s lawyer / notary. But ultimately, it should be the seller who should be punished. Going after the buyer is simply laziness on the part of CRA.

      • Yes I believe that if you buy speakers out of the back of a van, or a $5,000 mountain bike off craigslist for $100, you are exempted from any responsibility since it would need to be proven that you knew they were stolen.

        In fact you can just get a minor to do all your thieving, and once the stolen property is given to you it is effectively “laundered” since you didn’t steal it and the person who did is a young offender.

        OH NO WAIT that’s not how it works at all.

        We have a society here and we are MORALLY and legally all responsible for being reasonably sure that we are not deliberately or accidentally participating in a crime.

        If you disagree, go ahead and buy my laptop from a pawn shop in the DTES.

        But enjoy explaining yourself to a judge when the laptop reports its’ location back to me and I send the RCMP to your house.

      • A quick reply to Bull Trap: interestingly, the “buying speakers out of a van” is actually a scam– the buyer is usually considered a victim.

        The way it works is this: the white van man buys knockoff or crap quality goods, along some printed marketing material showing that these off-brand items are “worth” thousands. Then they look for gullible people in parking lots, and try to tell them that they’re buying some crazy-expensive audiophile speakers, worth thousands, but their employer accidentally put an extra set in the van, and they want to sell the set for a few percent of their actual value. At least, that was the scam a decade ago when a guy tried to sell me speakers out of a van…

        The implication is that they’re scamming their employer, and you’re in on the scam and benefiting from it, so greed gets you to let down your defenses. You end up overpaying for some junk, which was fraudulently misrepresented. Nobody has much sympathy for the people who bought crap out of a van, though, because they thought they were getting a deal on stolen goods, so morally they haven’t got a leg to stand on. The law, however, still considers them victims because they got scammed…

  4. I love Canada:

    “The CRA tax-residency rule is often not enforced, even in over-heated housing markets in Vancouver and Toronto that are in part fuelled by offshore money.”

    So enforcement is lax, right where it is needed the most. What kind of message has this sent to wealthy “parkers” of foreign capital? Bring your capital. Wreck the price structure of the local housing market. Don’t start a business. Live elsewhere most or all of the year. Don’t bother declaring any income from anywhere, and don’t bother paying taxes. Incredible

    • And the best part is if you do cheat on the capital gain tax, you don’t have to worry about any penalties cuz CRA goes after the buyer, not you!

  5. Does anyone know the name of the case?

  6. Twitter isn’t good for much, but it is good for some things, notably a tweet from a lawyer who, to paraphrase, stated the scope of this case is too narrow to extend it to much broader contexts. But hey, three cheers for the Postmedia scoopers. Why ruin a good story with reality?

  7. Ralph Cramdown

    I did some digging. Frankly, the CRA/notary tax holdback thing is the LEAST interesting part of this case, though the most sphincter-tightening of you’re a buyer or buyer rep. See here:
    http://torontorealtyblog.com/archives/17070#comment-69747

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