If you are purchasing a property from an owner who is not a Canadian resident, you must be careful and take certain steps in order that you do not become responsible for the Seller’s taxes owing to the Canada Revenue Agency (CRA).
A non-resident seller is liable to pay both capital gains tax and income tax from rental income earned on Canadian property. If the property produces rental income, the non- Canadian owner must declare the income earned during the year(s) of ownership.
On the sale of the property, the seller is liable to pay capital gains tax under our Income Tax Act.
If a non-resident seller fails to pay the correct amount of capital gains tax, the buyer remains liable to pay the tax.
The Act states that the buyer must withhold 25% of the gross (not the net) purchase price from the sale proceeds until the non-resident seller obtains a Clearance Certificate from the CRA indicating the tax owing has been paid.
This is something your real estate lawyer must follow up with and obtain the necessary information to ascertain whether a seller is a non-resident of Canada.
As the buyer, you and your agent may be able to assist in this determination by asking several basic questions concerning the seller! A simple question such as asking where the seller lives or is moving to, might suffice.
