Anyone selling real estate in Canada who is not a Canadian resident for income tax purposes, or does not file Canadian income tax returns is obligated to report and pay income tax on any required capital gains tax resulting from the sale of the property.
Since the person liable for the tax is non-resident, Canada Revenue Agency may not be able to collect the tax owing. Accordingly, the Income Tax Act states that the responsibility for the payment of tax lies with the purchaser. If a purchaser of real estate in Canada does not ensure that the seller is a Canadian resident for income tax purposes, that purchaser will be liable for payment of the tax that the non-resident seller should have paid.
The standard Alberta contract includes the necessary statements where the seller verifies they are Canadian residents. Your realtor and lawyer can also assist in making sure the seller is a Canadian resident for income tax purposes. This is just one more instance where the services of a professional realtor can be of tremendous assistance.
As a purchaser, you must either obtain from the seller the Certificate issued by Canada Revenue Agency showing that all required taxes are paid or you must send 25% of the entire purchase price to Canada Revenue Agency. CRA will hold those funds until the non-resident seller has filed their tax return. CRA will then release any excess funds to the seller.
If the seller is a non-resident and would like to receive all his sale proceeds on the day of closing, he must file a tax return showing the purchase price, the sale price and any related expenses and then pay any required taxes. All this can be done before the closing date with a Certificate issued in advance of the closing date. The seller should present this Certificate to his lawyer, who in turn provides it to your lawyer, which will allow the seller to receive all of his sale proceeds on the closing date.
Realtors perform a valuable role in the purchase and sale of real estate. Realtors have expertise in marketing properties. They also perform many other valuable functions. Their primary functions can be divided into three categories.
Realtors provide expertise, feedback and information to both buyers and sellers regarding the property itself. The seller’s realtor will provide valuable advice on what can be done to enhance the property to make it attractive to buyers. The realtor for the buyer can either directly, or with the assistance of experts such as building inspectors, identify for potential buyers the strengths and potential weaknesses of a prospective property.
Realtors have been trained in and have considerable experience in the process of negotiating an acceptable deal for both sides. Reaching a consensus regarding price is just one aspect of the negotiating process. Negotiating a number of other details such as completion dates or a process for any necessary repairs can ensure a smooth closing.
Realtors provide valuable assistance in navigating the entire real estate transaction. For example, they will ensure the seller orders an RPR well in advance of closing and provide valuable advice on issues such as insurance and utilities.
As lawyers, we do not provide the services of realtors. For that reason, we strongly encourage the use of realtors and will refer potential clients to a realtor for their advice and assistance before agreeing to act on a real estate matter. In certain circumstances, such as a transfer between family members or business partners, we will act where no realtor is involved.