If you are involved in the sale of property by non-residents of Canada, you should be aware of the applicable provisions of the Income Tax Act to avoid problems when it comes time for the sale to complete.
Briefly, if taxes are oweing to the Canada Customs and Revenue Agency by a property owner, that property can be charged to secure payment of outstanding taxes. It may be charged even after being transferred to a new owner.
In order to be protected, the buyer must make a "reasonable" inquiry as to the seller's residency status, thus the need for indicating "Resident/Non-resident of Canada" under the buyer information on the Contract of Purchase and Sale. The buyer's notary or lawyer will make a similar inquiry of the seller when the conveyanceing documents are signed.
If the seller is a non-resident of Canada, then he must apply for and obtain a Clearance Certificate from the Revenue Agency, and provide the buyer with this certificate. It normally takes four to six weeks for the Revenue Agency to issue a Clearance Certificate, however, depending on their workload at the time, they may be able to expedite this if necessary and issue one in as little as two weeks.
If a Clearance Certificate is not provided to the buyer then the buyer must holdback one third of the sale price until the certificate is provided. If it is not forthcoming, then this sum is remitted to the Revenue Agency and the buyer and the property is protected from any further liability or charge.
This can become a real problem at the time of completion, especially if the existing mortgaging exceeds two-thirds of the sale price, and there are not sufficient proceeds to allow for the holdback and clear title; not to mention the payment of commission to realtors and closing costs to the buyer.
