Introduction to Red Flags in Real Estate Transactions: This is part of a series of blog posts where we share red flags that lawyers watch out for during real estate transactions as part of the conveyancing process. Sharing these insights can empower home buyers, sellers, and real estate professionals to better serve their clients, ensuring smooth and secure property transactions.
The citizenship and immigration status as well as residency status of home buyers or sellers, can significantly impact the real estate conveyancing process . It’s vital to gather this information early on to avoid complications and ensure a smooth transaction. Waiting until later in the process can lead to difficulties that may affect the entire deal.
For Sellers: If you are representing sellers, it’s crucial to confirm that they are residents of Canada for Income Tax purposes. If they are not, the Income Tax Act mandates withholding 25-50% of the sale price (not the sale proceeds) until the seller obtains a Clearance Certificate. In the event there is not sufficient equity to holdback the funds, the seller will be required to make up the shortfall of the holdback amount. This step is essential to remain compliant with tax regulations and prevent delays in the sale.
For Buyers: On the buyer’s side, there is a noteworthy consideration – a two-year moratorium on individuals who are not Canadian citizens or Permanent Residents (with specific exceptions) from purchasing real property in most Canadian jurisdictions, known as the Prohibition on the Purchase of Residential Property by Non-Canadians Act. Understanding this law is essential to ensure a lawful purchase.
Early clarification of your clients’ immigration and citizenship status is paramount, as the application process for a Clearance Certificate, if needed, can take more than six months and can only commence once a firm sale is in place. By proactively addressing these considerations, you can safeguard the interests of your clients and facilitate a seamless real estate transaction.
