The first time I broke the news to a New York lawyer that his
client would not receive the expected sale proceeds at closing was
a memorable experience. He launched into a profanity-laden tirade
that culminated in a suggestion requiring a level of flexibility I
do not possess. The experience could easily have been more
memorable. Had I not taken the necessary precautions discussed
below, our client might well have been stuck paying double for his
property and I would likely have had to deal with a lot worse than
some colourful language.
If you are buying Canadian real estate from a non-resident of
Canada, you need to know that:
while regimes vary by province, the withholding tax applicable
to the transaction could be as high as 80
while it is technically the Vendor's obligation to remit
non-resident taxes, the tax authorities will in certain
circumstances pursue the purchaser if these taxes are not
at closing, you should always place in escrow the maximum
non-resident tax amount payable on a deal, obtain comfort letters
from the taxation authorities, and remit the amount set out in
those letters directly to the authorities. If you do not put proper
holdbacks in place, by the time you factor in the cost of the taxes
payable plus costs incurred pursuing your vendor, you could easily
end up paying double for your real estate. And if your vendor is a
shell company, good luck recouping anything.
you should insist that your purchase agreement contain a
representation and warranty from your vendor that it is not a
non-resident of Canada. If your vendor is a corporation whose name
ends in something other than Ltd., Inc., or Corp., ask your vendor
to provide proof of residency.
you should check whether the property you are buying is
mortgaged. If your purchase price is less than the outstanding
amount of the mortgage plus the non-resident tax holdback, you
won't have enough escrowed funds to close your deal. There are
a few ways out of that room. We recently did a deal in which the
purchaser lent the vendor money so there would be sufficient funds
in escrow at closing to cover the vendor's mortgage and the
non-resident withholding tax.
If you are a non-resident of Canada acquiring real estate in
Canada, a lawyer can help you structure your investment so that you
are not subject to any non-resident headaches down the road when it
comes time to sell. If you are buying Canadian real estate from a
non-resident, a lawyer can help you avoid buying one property for
the price of two. The moral of the story: call your lawyer. If you
call a member of our real estate team at McCarthys, we would be
glad to help.
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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