0

Residential Sellers Without Identification

This article explains the impact of a sale by a seller who cannot provide the relevant identification.

While the content of this post should be considered reliable and informative, this should not be considered legal advice and we recommend that you contact our firm directly should you have any questions.

Contact Douglas Robertson LLP here to speak with a Lawyer


WHAT HAPPENS WHEN YOUR SELLER HAS NO ID?

In a recent experience, Douglas Robertson LLP was assisting a client who had sold their property and before signing with the lawyer, had their vehicle broken into whereby their wallet and ID was stolen. The client had no other valid form of ID and could not provide any acceptable ID to legitimately prove that they in fact were the owner of the property.

Very simply put: if you cannot prove to your lawyer that you legally own the property, then you cannot sell it.

The impact of not providing the required ID could cause the transaction to fall through and the seller could forfeit the sale. Once all conditions have been waived, if a seller is unable or unwilling to follow through with the transaction then the buyers can pursue them for all costs and damages related to the deal.

Take Away: make sure you / your clients have acceptable ID.


HELPFUL HINTS!

KEEP ID VALID

By ensuring you / your clients have valid ID you eliminate the chance of not being able to close the transaction because of a lack of acceptable ID.

  • Set up an online reminder for your driver’s license. In lieu of the written reminders the Alberta Government used to send out, there is now an online reminder service. Sign up now https://eservices.alberta.ca/notify
  • Set up a reminder on your phone for 3-6 months before various ID expires.
  • Check out the requirements of renewing or replacing ahead of time to get the ball rolling early enough to meet your needs.

KEEP ID SAFE

By ensuring you / your clients keep alternative original ID protected you eliminate the chance of not being able to close the transaction because of a lack of acceptable ID.

  • Prepare for the worst by investing in a small fireproof safe for your home.
  • Plan ahead by organizing a safe deposit box with your bank or credit union.
  • Entrust certain people with the location of your important documents, including original forms of ID, in case you are unable to access them yourself when needed.

WHY DO SELLERS NEED ID?

Your lawyer is required by law to verify that you indeed are the legal owner of the property and therefore have authority to sell the property. (Acceptable forms of Alberta ID are listed below.)

Your lawyer is also required to ensure that dower rights are being adhered to. This means verifying there is not a spouse whose property is being sold without their permission through the Dower Acknowledgement. Read our article ‘Dower Consent & Acknowledgement’ for more information regarding the dower.

RULE

Law Society of Alberta states acceptable ID to be ‘valid original government issued identification’.


ACCEPTED FORMS OF ID

  • Motor Vehicle Driver’s Licence
  • Alberta Provincial Identification Card
  • Valid Passport
  • Canadian Citizenship Certificate Card
  • Permanent Residency Card
  • Government of Alberta Employee ID for Child and Family Service Authority Card
  • Treaty Status Card
  • Canadian Immigration Visa
  • Canadian Forces Identification Card
  • Correctional Service Canada Card
  • Corrections Officer Identification Card
  • Fire Arms Card

0

Non-Resident Sellers & The Tax Implications

This article reviews the basic process for transactions involving a sale by a Vendor who is a Non-Resident.

While the content of this post should be considered reliable and informative, this should not be considered legal advice and we recommend that you contact our firm directly should you have any questions.

Contact Douglas Robertson LLP Here to speak with a Lawyer


NON-RESIDENT SELLERS

• For all transactions involving a sale by a Vendor who is a Non-Resident for income tax purposes, a Certificate of Compliance from Canada Revenue Agency (“CRA”) must be obtained. If not, the Buyer will be responsible for paying taxes due and any penalties!

• The sale of an interest in Canadian real property is a Taxable Canadian Property (as defined in the Income Tax Act) (“TCP”). (This includes personal use home, rental properties and land building held as inventory)

• Non-Residents (Note 1) who dispose of a TCP are required to obtain a (“Certificate of Compliance”) from CRA, commonly referred to as a “Clearance Certificate” (Note 2)

• Income taxes payable are basically 25% of the excess of the sale price over the adjusted cost base of the TCP. (Note 3)

• The correct CRA form is completed and filed and once approved by CRA, a certificate of compliance is issued.

• The request for a certificate of compliance form (Form T2062) must be remitted, by Registered Mail, within 10 days of the sale.


THE BASIC PROCESS:

• The Seller’s Lawyer withholds at least 25%, but up to 50% of the Selling Price (Note4) from the Seller and gives the Seller 50%-75% of the Selling Price. The Seller’s Lawyer is on an undertaking to provide the Buyer’s Lawyer with a Clearance Certificate.

• The Seller will need to hire a Canadian accountant to file the required documentation. (Note5)

• The necessary form, with supporting documents and required withholding tax, which will be provided by the Seller’s Lawyer to the Accountant from the 25% holdback funds, will be prepared and forwarded to CRA.

• CRA will review the submission; advice of changes needed or confirm all is good and issue a Clearance Certificate. This can take from two weeks to three months.

• Once the Clearance Certificate is issued, the Seller’s Lawyer will provide a copy to the Buyer’s Lawyer and the Seller and then release the balance of the holdback funds.

• Take Away 1: Vendor who thinks they may be considered a Non-Resident for tax purposes should speak with their accountant as soon as they decide to list the property for sale to minimize delays in the release of their sales proceeds.

• Take Away 2: Make sure your Vendor has at least 25% of the sales proceeds (either in equity or in savings), otherwise he will not be a position to close the deal.


Note 1

• The Income Tax Act (“ITA”) defines a non-resident as “not resident in Canada.” Whereas the ITA does not define residency.

• The ITA S 250(1) sets out the rules on Deemed Residency, which provides the 183 day test.

• Residency is normally based on Common law principles, including the leading decision by the courts, Thomson V MNR [1946] SCR 209, 2 DTC 812

o Ordinary resident is defined in S 250(3) and the courts determined that one is “ordinary resident” in the place where in the settled routine of his life he regularly, normally or customarily lives.”

o Residency is then determined based on fact and intention:

Significant Residential Ties

Location of home/dwelling, spouse/common law partner and dependents

Secondary Residential Ties

Personal property, social ties, economic ties, driver’s licenses, work permits, landed immigrant status, seasonal dwellings, Canadian Passport, memberships

Other Residential Ties

Canadian mailing address, telephone listings, newspaper subscriptions, etc.

• Tax treaties are used to determine tie-breaker rules when determining residency. US-Canada tax treaty Article IV defines its interpretation of residency as:

o “any person that… is liable to tax therein by reason of that person’s domicile, residence, citizenship, place of management, place of incorporation”

o A resident of the US, is not a Canadian resident based on the substantial presence test, permanent home or habitual abode, and that individuals personal and economic relations are closer to the US than any third state.

• IRS – Form 6166 can be filed to request certification of residency

• CRA – Form NR73 can be filed and CRA will provide an opinion on your residency status.

Note 2

• There are 3 types of clearance certificates that can be filed.

o S 116 (2) for a proposed disposition – which should be filed 30 days in advance of the proposed disposition, to allow CRA time to process the clearance certificate

o S 116 (4) for an actual disposition – which needs to be filed within 10 days of the disposition date

o S 116 (5.2) for a actual or proposed disposition of real property that is other than capital ( ex. Inventory) with similar filing requirements as above.

Note 3

o If capital cost allowance (“CCA”) has been taken, but the amount is not certain, the required withholding will include the estimated recapture multiplied by the applicable federal tax rate (maximum CCA would indicate a 50% withholding)

Note 4

• S 116(5) – Liability of purchaser

o Purchase must make a reasonable inquiry as to the residency of the vendor, previously received the certificate or if tax treaty protected property, the purchaser must provide notice to the Minister with 30 days.

o Purchaser is liable to pay and remit 25% of the cost of the property acquired or any shortfall from the actual purchase price and the amount reported on the clearance certificate.

o There is no time limitation, and CRA can assess this at any time.

o If capital cost allowance (“CCA”) has been taken, but the amount is not certain, the required withholding will include the estimated recapture multiplied by the applicable federal tax rate (maximum CCA would indicate a 50% withholding)

• S 116(5.3) – Liability of purchaser in certain cases (real property that is “other than Capital Property)

o Purchaser may be liable to pay tax on behalf of the non-resident of 50% the purchase price, where a certificate of compliance was not issued, or where the amount by which the purchase price of the property exceeds the amount fixed in the certificate.

• Non-resident selling or gifting property to a non-arm’s length, the proceeds are deemed to be Fair Market Value and the purchaser acquires the property for fair market value.

Note 5

• If the disposition is subject to the rollover provisions of Section 85, then the election form (T2057) must be filed along with the request for a certificate of compliance (T2062)

• If the property is an exempt property or treaty exempted, then the Non-Resident can claim for a tax exemption under various tax treaties, providing the applicable provision of the tax treaty and supporting documentation (to indicate that tax was paid in country of residence), with the request for a clearance certificate T2062 form. A clearance certificate will be issued to indicate that the sale was treaty exempt.

• If the non-resident does not have a Business number, Social Insurance Number or Individual Tax Number, the request for a Business number or individual tax number must be filed with the request for a certificate of compliance.

• A certificate of compliance will be required if a Canadian resident is selling a property and becomes a non-resident before the property is disposed of.


Other Notes

• A vendor is not required to file a tax return if:

o The Vendor is a non-resident at the time of the disposition

o There is no Part I tax payable for the year.

o There are no amounts owing for taxes from prior years

o If a clearance certificate was issued and there is no additional taxes owing

• An income tax filing will otherwise be due, and any excess payment is refunded, or provision is made for the release of security once the amount owing has been satisfied.

o Income tax returns are due on April 30th for individuals, 90 days after the end of the trusts taxation year and 6 months after the fiscal year end for corporations.

• Possible exemption for Principal Residence for the time the non-resident was a resident of Canada and living in the home.

• Any amount of tax owing and discussed herein relates to federal tax owing, and relates to amounts owing and paid to the Canada Revenue Agency. Provincial taxes vary and may result in additional taxes, ie land transfer tax etc.

0

The Lawyer Process

The following is a list of issues that law firms might deal with when preparing documents and closing a real estate transaction.

While the content of this post should be considered reliable and informative, this should not be considered legal advice and we recommend that you contact our firm directly should you have any questions.

Contact Douglas Robertson LLP Here to speak with a Lawyer.


1. USING THE PROPER PURCHASE CONTRACT:

• If you are selling a newly built home, or a substantially renovated home, it is important to use the proper Purchase Agreement.

• The buyer should be paying the GST on the purchase of a brand new home, or a substantially renovate home.

• If you use the resale contract, the builder will be responsible for paying GST, as the resale contract stipulates that GST is included in the purchase price.

• Take Away 1: This can add up to a lot of money! For example, if the sale price is $375,000, the GST would be $18,750.


2. BUILDING PERMIT ISSUES:

• Law firms, including Douglas Robertson LLP, do not deal with building permit issues.

• If you are listing a property, and the clients have built any structure on the property, you need to ensure that the proper permits were issued for the structures.

• If the clients did not get the proper permits prior to building the structures, they do need to apply to the city for them, prior to the closing date. There is no guarantee that the City will approve the permits, and if they are not the structures need to be altered or removed to comply.

• Take Away 1: if the client is aware that they did not get the proper permits, they are required to advise the purchaser of this, otherwise the seller would be in breach of the representations and warranties clause of the Purchase Agreement.


3. REAL PROPERTY REPORT:

• The seller must have an up-to-date Real Property Report (RPR) with a Certificate of Compliance from the municipality prior to the closing date, and provide the buyer’s lawyer with reasonable time to review the document.

• If you are listing a property, it is important to double check with your client that they are in possession of a current RPR, and if they are not that they order it well in advance.

• If the RPR is not ready prior to the closing date, one of the following can happen:

o Buyer won’t take possession until the RPR is provided (a lot of Calgary law firms are now recommending this to their clients)

o The buyer will take possession but only pay interest on their mortgage until such time as the RPR is provided

o Buyer’s lawyer will require a holdback (typically starting at $10,000)

• None of the above three options are beneficial for the vendor because it means they continue to pay their mortgage, and incur interest until it fully closes, and a very high holdback amount could have adverse effects on the payout of a mortgage.

Take Away 1: Start the RPR process early to give ample time to have it completed prior to the closing date.


4. ENCROACHMENTS AND RELAXATIONS:

• An encroachment is any portion of a building, fence, driveway, retaining wall, or other structure that encroaches onto City property.

o If a structure encroaches onto City property more than the allowable amount, an encroachment agreement with the City is needed.

o An encroachment agreement is needed to make the Real Property Report compliant with City standards.

• You can also have a private encroachment where a portion of a building, fence, driveway, retaining wall, or other structure encroaches onto the neighbour’s property.

o In this case you would need an encroachment agreement with the neighbour, which can be difficult and highly time consuming.

• Relaxations

o Relaxation Permits are granted by the City of Calgary and relax the rule which you have offended. Granting a relaxation permit would allow the structure to remain on the property, and would grant compliance on the Real Property Report.

o This can apply to a deck which is built too close to a property line, or other structures on the property. If your client has an issue with their Real Property Report that needs a relaxation permit, this needs to be addressed right away, as relaxation permits usually take 8-9 weeks.

o Relaxation permits are not automatically granted, and if the City declines the application, the client may need to remove a structure, and this is why holdbacks can be high. If the purchasers are now required to pay for the demolition or changes to their new property, they will use the related holdback funds to do so.

• Take Away 1: Start the encroachment agreement or relaxation permit process early to give ample time to have it completed prior to the closing date.

• Take Away 2: As soon as the deal is referred to the lawyer, notify them of the encroachment issues, or relaxation issues so that they can begin the process well before the deadline.


5. HOLDBACKS:

• Holdbacks are a process created solely by lawyers to facilitate real estate closings when there is something outstanding. A holdback is a courtesy to the other side, and is not a guarantee.

• Particularly for buyers: unless you’ve written that you have a holdback allowance into the contract, there is no way you can enforce it against the seller.

o Any concern you might have regarding the property, you need to put a provision into the contract for an appropriate holdback amount prior to signing.

o You should also make sure that the provision is clear in terms of how you would get the money, what triggers the holdback to be released, and when it is to be released.

• Sellers

o On a sale, it is important to note that if documents like a Real Property Report are outstanding, a holdback is not always an option.

o If documents are outstanding, we can’t force the other side to accept a holdback, and contracts are really written in favour of the buyer in this respect.

o A lot of Calgary firms are recommending to clients that they don’t close if Real Property Reports are still outstanding, and will not accept a holdback instead.

o Best thing to do to avoid this is to have everything ready and updated well in time for the closing date.

• Take Away 1: On the buyer side, make sure you include any holdback clauses into the Purchase Agreement!

• Take Away 2: On the sale side, make sure you have all closing documents available to the other side prior to the closing date to avoid holdbacks.


6. PROPER IDENTIFICATION:

• When listing a home for a client, it is important to note that they do need proper identification in order to sign transfer documents with a lawyer.

• While this doesn’t come up for firms quite often, we have had clients who have had no piece of proper government issued ID, and this resulted in a significant delay in closing the sale.

o This can have a significant impact on the client, as they must continue to make mortgage payments, condominium payments, and tax payments until the deal can close.

• Other forms of possession, like tenancy-at-will should not be used to rectify delayed closings due to lack of identification. We need to ensure that the person signing the documents is the legal owner of the home, and has the right to transfer the property to someone else.

• Take Away 1: Double check with your client that they have proper identification to sell their home! At a minimum, they must have one piece of valid, government issued identification. Lawyers cannot accept expired pieces of ID.

• Take Away 2: If you are listing a home, and the client has notified you that they do not satisfy the identification requirement, ensure that there is ample time until the closing date so the client can get replacement identification.

0

Dower Consent & Acknowledgment – Residential Sellers

This article reviews the forms required when Dower rights apply. This is applicable only if you are legally married. The common law rules no longer apply in Alberta, but have been replaced by the Dower Act which grants dower rights to both the husband and wife and uses the term “spouse”.

While the content of this post should be considered reliable and informative, this should not be considered legal advice and we recommend that you contact our firm directly should you have any questions.

Contact Douglas Robertson LLP Here to speak with a Lawyer.


As a seller in Residential Real Estate, when do you need to ask about Dower?

You may be informed in the early stages of your real estate transaction as to whether the Dower Act applies. As early as the first appointment to sign your listing agreement with your Real Estate agent, you may be presented with 2 additional forms from RECA

(1) Exclusive Seller Representation Agreement Dower Consent and Acknowledgement

(2) Purchase Contract Dower Consent and Acknowledgment

These forms are to be used if:

  1. There is only one registered owner of the property;
  2. The owner is legally married (includes a separated couple not yet legally divorced but does not include a couple in a common law relationship); and
  3. The owner or the owner’s spouse has resided on the property at any time since marriage. This form is to be signed by the spouse of the registered owner of the property.

The spouse must also sign:

  1. The Exclusive Seller Representation Agreement
  2. The Exclusive Seller Representation Agreement Dower Consent and Acknowledgment
  3. The Purchase Contract
  4. The Purchase Contract Dower Consent and Acknowledgment

Note: This consent form is not required when there is an undischarged Release of Dower Rights registered on Title. However, the Dower Act allows for revocation of a Release of Dower Rights. Accordingly, legal advice is recommended when there is a Release of Dower Rights registered on title.

The Officiating Officer is an authorized person such as a Commissioner of Oaths or a Notary Public, the instrument is the Purchase Contract.

Take Away: Your Real Estate Agent may present you with the Dower Acknowledgement for both the listing, and the sale of your home to be signed at the same time. Your lawyer or the firm will be able to facilitate the signing of both the Dower Consent forms.