Article content continued

Developers and lawyers say the situation has been open to interpretation, but the CRA’s response to Postmedia this week was clear: When there is a sale of any residential property from a non-resident seller to a local buyer, it is the local buyer who is required to either get a clearance certificate or hold back 25 per cent of the gains in order to pay potential capital gains taxes. This is presumably because it is much harder for the CRA to track such payments from a non-resident seller.

If the CRA determines that gains from selling assignments are subject to income tax, the withholding requirement can increase to 50 per cent. This is triggered if a seller sells multiple properties rather than just a principal residence. The CRA says for income tax, the withholding rules do not specify the residency of the buyer, but if both seller and buyer are non-residents, then the requirement applies.

The CRA confirmed the same requirement exists when it comes to selling interests or options in residential real estate such as presale condo sales and assignment transfers: local buyers are required to withhold 25 per cent of the gains made by a non-resident seller.

In October last year, Stovell’s company hiked the fee it charges for allowing presale condo owners to assign or sell a contract at two of its developments, including the high-profile One Burrard project in Vancouver’s West End.

Reliance Properties started stipulating that instead of owners paying it a standard 1.5 per cent of the initial purchase price to get permission for an assignment sale, they would have to pay Reliance 25 per cent of the profit they made between the original sale and the assignment.

The company did not specify it was imposing this fee only on assignments from non-resident sellers to resident buyers. At the time, Stovell said there had been a rapid increase in requests by owners to assign presale condo units at One Burrard.

As well, he mentioned reports of “unauthorized advertising of (One Burrard) assignments” online, in particular, on private realtor websites and through emails and social media.

He explained that Reliance was hoping to dampen speculation. The presale units had long been sold out, and had increased in per-square-foot value by an estimated 40 per cent since they were released on the market in late 2015.

Asked to clarify if what he meant to say the company’s new policy was designed to curb assignments, and in doing so also mitigate any possibility of approving assignments where buyers might not complying with tax withholding rules that haven’t been clear, Stovell said that “the buyer is the assignee, not us, and they would be responsible for the 25-per-cent withholding.”

He advised local buyers of assignments to seek third-party tax advice from a lawyer.

“Is it the developer’s job to warn (local) buyers (of assignments from non-residents) to withhold (money to pay for) taxes?”

jlee-young@postmedia.com

You might also like: