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Buyer Beware: Tax Implications of Buying from a Foreign Owner


Buyer Beware: Tax Implications of

Buying from a Foreign Owner

Imagine being the lucky winner in a bidding war and finding out you have to pay $625,000 extra on a $2,500,000 house purchase or even $125,000 on a $500,000 condo purchase. If you are buying a house or condo, there is important information you need to know about. If you suspect the seller of the property is not a resident of Canada or won’t be on the completion date, the onus is on you, the purchaser, to perform your due diligence to determine the sellers’ residency status.

Employment income, income from a business operated in Canada, and capital gains earned from selling Canadian real estate are all subject to tax. If a U.S. resident owned a condo in Toronto they used while working here temporarily and sold it, they would likely incur a capital gains tax. Likewise, if an Asian family had purchased a property for their children to attend high school or university and then sold it when it was no longer needed, capital gains tax could be owing.

Of course, collecting the tax from someone off-shore can be difficult if not impossible, so the Income Tax Act makes a provision for the purchaser to withhold 25% of the purchase price unless a Clearance Certificate has been issued by CRA or “after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada.”  Generally a seller signs a “sworn” statement that he or she is not a non-resident of Canada (meaning the seller is either a permanent resident or citizen of Canada). Even if a statement is signed, it might not be recognized if you, the buyer, has ignored warnings that they may, in fact, be a non-resident.

There was a court case over the summer where a resident of California purchased a property several years ago and subsequently sold the Toronto condo. The seller was physically present in California on the completion date and signed a one-line statement that he was “not a non-resident of Canada for income tax purposes, nor will I be a non-resident on the completion date”. The Agreement of Purchase and Sale showed a California address to be used for document delivery. The judge in the case noted that the seller signed he had DECLARED he was not a non-resident. This was not a SWORN statement nor was it a SOLEMN DECLARATION. The judge further noted there were too many “red flags” to accept an unsworn statement and not to raise suspicion that this seller was not a non-resident. The purchaser was ordered to pay $92,000, which represented a whopping 25% of the $368,000 purchase price.

Most real estate transactions are closed by a lawyer acting on behalf of the seller, but a buyer should have their own lawyer as well. Make sure your lawyer requests proof of citizenship or permanent residency to eliminate your tax obligation on the purchase of your next home.


August 2018 Toronto Real Estate Market Report


Market data for August came in as expected. Both the average sale price and the number of residential properties reported sold increased compared to August 2017. The average sale price for all properties sold came in at $765,270, or almost 5 percent higher than last year’s average sale price of $730,969. The number of properties sold compared to last year increased by almost 9 percent to a healthy 6,839 from 6,306 in 2017.

The increase in property sales was slightly unexpected. The 905 region was particularly hard hit by the implementation of the 15 percent foreign buyers tax. Since April of 2017 sales in the region have lagged behind sales in the 416 trading areas. That was reversed in August. Of the 6,839 sales achieved in August, 4,398 occurred in Toronto’s 905 region. It appears that the 905 market has adjusted to the implementation of the provincial legislation.

Although sales have clearly picked up in Toronto’s 905 region, sale prices continue to lag. For example, the average price of a detached house in the city of Toronto came in at $1,244,275 as compared to $907,780 in the 905 region. Similarly, semi-detached properties in the City of Toronto sold for almost $900,000, but dramatically less at $667,979 in the 905 region. Even condominium apartments in the City of Toronto out-priced sales in the 905 region. The average sale price of condominium apartments in the City of Toronto came in at $585,355 and at only $440,748 in the 905 region, although compared to last August average sale prices increased by 8 and 6 percent respectively in both trading areas.

The high end of the market also showed some improvement in August, but marginal. Last August 132 properties were reported sold having a sale price of $2,000,000 or more. This August 144 properties were reported sold in this category. The bulk of these sales were detached homes, although there were 8 condominium apartments sales in the $2,000,000 plus range.

In all categories, central Toronto properties continue to be the most expensive. Detached properties sales came in at $2,201,334. Semi-detached properties averaged $1,087,507, and condominium apartments averaged $662,059.

Listing inventories have increased compared to August last year. This August 12,166 new properties came to market, an increase if 6 percent compared to the 11,481 that came to market last year. As a result, active listings at the end of August were almost 9 percent higher than last year. In 2017 there were 16,419 properties available for buyers to view and purchase. This year there were 17,864.

A closer examination at the greater Toronto inventory indicates that it is overwhelmingly concentrated in the 905 region. Of the 17,864 active listings in the greater Toronto area, 13,056 were located in the 905 region with only 4,808 in the City of Toronto. Looked at from the perspective of months of available inventory, there are 2.6 months in the 905 region and only 1.9 in the City of Toronto. The same was true for new listings that came to market in August. Only 3,752 of the 12,166 new listings in August were in the City of Toronto. Interestingly, more than half of these new listings were condominium apartments.

Unlike last year average sale prices are only occasionally exceeding the average list price. In the City of Toronto all sales came in at 99 percent of the average sale price and sold in 23 days. In the 905 the sales to list price was lower, with sales taking place in more than 25 days, on average. Buyers are more deliberate, unwilling to pay any price to secure a property. Sellers’ expectations have modified dramatically since early last year and are more aligned with that of buyers.

The only trading area that has defied the changes that have taken place in the Toronto and area market place is Toronto’s eastern districts, especially those closest to the downtown core (Riverdale, Leslieville, and the Beaches), particularly semi-detached property sales. Sales in these neighbourhoods were all completed in 10 days on average, and all sales prices exceeded the average list price by 109 percent. At one time it could be argued that these trading regions bucked the norm because of affordability, but with the average sale price for semi-detached properties exceeding $1,000,000 that is obviously no longer the case. These neighbourhoods are simply some of the most desirable in the City of Toronto in their price point.

During the last part of this year the market is unlikely to vary dramatically from what occurred in August. In fact, price increase and property sales will likely be even more moderate that those achieved this August. The increases of 9 percent (sales) and 5 percent (average sale prices) were high compared to August 2017, the weakest month following the implementation of the Ontario Fair Housing Plan in 2017. Going forward expect increases in the 3 to 5 percent range for both sales and average sale prices.

Prepared by: 
Chris Kapches, LLB, President and CEO, Broker

Featured Photo Credit: Shane Kingerski