Avoid Costly Mistakes Concerning the Foreign Buyers’ Tax #549
CATEGORY: Legally Speaking
TAGS: Fair Market Value Foreign Buyer’s Tax Foreign Buyers Foreign Ownership Taxes
A recent BC Supreme Court decision (Shave v. Sommerey, 2022 BCSC 183) highlights the potential risks for REALTORS® working with buyers whose residency or citizenship status is unknown or has recently changed.
The Property Transfer Act, RSBC 1996, c. 387 was amended in August 2016 to impose a surtax on the fair market value of the property at the time of purchase. Initially, a 15 per cent surtax applied only to the Metro Vancouver Regional District; but on February 20, 2018, the provincial government increased the surtax to 20 per cent and its geographical application extended to other regional districts, including the Capital Regional District, Fraser Valley, Nanaimo and Central Okanagan.
The plaintiffs in Shave v. Sommerey moved from the UK to Kelowna in January 2018. In May 2018, they made an offer to purchase a home in Kelowna, indicating in the Contract of Purchase and Sale that they were not citizens or permanent residents of Canada. However, this offer collapsed for financing reasons and the plaintiffs indicated to their Realtor that they could not afford the purchase as they were still not Canadian permanent residents.
Later in May 2018, the plaintiffs drove across the border into the US to finalize paperwork for their move to Canada. On learning of this trip, the plaintiffs' Realtor understood its purpose was for the plaintiffs to become permanent residents or citizens of Canada.
In late June 2018, the plaintiffs made an offer to purchase a different home in Kelowna for $862,000. The Realtor filled in the Contract of Purchase and Sale, indicating “yes” to the question regarding the buyers' Canadian residency, based on the Realtor’s earlier understanding regarding the plaintiffs' US border trip. Unfortunately, this error was never corrected, although it turned out the US border trip had to do with the plaintiffs finalizing their Canadian work permits—and not with becoming residents or citizens.
The plaintiffs completed the purchase but were later assessed an additional $172,400 in tax. As a result, they sued their Realtor and their conveyancing solicitor. The solicitor had made no express inquiries to verify the plaintiffs' residency status. Nonetheless, the Court found the Realtor 70 per cent liable for the plaintiffs' damages, the conveyancing solicitor 20 per cent and the plaintiffs themselves 5 per cent.
When working with buyers who have recently moved to BC and wish to purchase in one of the geographical areas subject to the 20 per cent foreign buyers’ surtax, it is important for Realtors to inquire into their residency status.
Where there is uncertainty, it would be advisable to refer the buyers to a lawyer or accountant to obtain advice on the applicability of the foreign buyers' tax as a condition or prior to entering into a Contract of Purchase and Sale. Documenting advice in writing is always a good idea.
In addition, more complicated situations, such as separation agreements, foreclosures, transfers to beneficiaries of estates or potential surtax rebate, etc., could also attract the foreign buyers' surtax.
There is a recent Court of Appeal decision concerning the liability of a conveyancing lawyer (Tellini v. Bell Alliance, 2022 BCCA 106) about the lawyer’s advice to a non-resident spouse respecting the timing of a separation agreement and subsequent transfer of the other spouse’s 50% share of the family home into her name. In this case, the spouse had lost the opportunity to get a refund of the foreign buyers’ tax she paid ($74,700) because she did not become a resident until more than a year after the transfer. The Court found that the refund possibility was not reasonably foreseeable.
In sum, it is essential to perform proper care and due diligence in knowing your client and their residence or citizenship status. Minor oversights can lead to costly mistakes when dealing with the foreign buyers' tax. Realtors should take caution to minimize any potential risks involved in real estate transactions.
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