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In 2017, the CRA was asked whether this “reasonable inquiry standard” can be satisfied if the purchaser obtains a statutory declaration from the vendor that the vendor is not and will not, at the time of closing, be a non-resident of Canada.

The CRA’s response was that “the purchaser must take prudent measures to confirm the vendor’s residence status. Each case will be reviewed on an individual basis…. Obtaining such declaration would not, however, provide a due diligence defence if there are facts and circumstances present suggesting that the purchaser should have made further inquiries. Such facts could include, for example, a known mailing address outside of Canada or any other indication of the vendor’s residence being outside Canada in the transaction documentation.”

In the recent tax case, it was a foreign address combined with a questionable declaration that proved problematic for the purchaser.

In June 2011, the taxpayer purchased a Toronto condominium unit from an “apparent non-resident of Canada.” The transaction was completed without a clearance certificate and without the taxpayer having deducted and withheld 25 per cent of the purchase price. The taxpayer thus found himself in Tax Court liable for $92,000 of tax, being 25 per cent of the $368,000 purchase price of the condo.

The taxpayer was aware from a prior visit to the condo that the vendor did not live there and that it was an investment property for him. The taxpayer retained a lawyer who established through searches and other preparation work for the closing of the transaction that the vendor had purchased this property in 2009 and his then address for service was in Danville, California. This was the same address for service as the vendor had given for his now sale of the property. As well, the taxpayer’s lawyer was informed that vendor would be signing the closing documents in California.