Protect yourself and your clients – know the laws

Mark Weisleder
REM

I have been practicing law for over 35 years, but it seems I learn something new every day. Laws change and you need to be up to date in order to practice in a manner that protects both agents and clients. Here are five tips to assist you with what I hope will be a successful 2019.

1. Get everything in writing:

Whenever I assist a real estate agent with a claim made against them by a client, or from the regulator, a common request is to see all the signed documents –

especially written instructions from a buyer or seller whenever you are asked to make any changes on a listing, presentation of offers in a bidding war or the agreement of purchase and sale. Do yourself a favour this year to always document instructions you receive from a client, whether by a signed agreement, email or text, to make sure there is always a written record of every action you are taking, especially when prior instructions are being changed.

2. Rent control:

In Ontario, as a result of changes made on Nov.15, 2018, every new rental unit created on or after that date is no longer subject to rent controls. This means the landlord will be able to increase the rent more than the government increase in 12 months. If you act for a tenant in a new unit, you may want to consider adding a provision to the lease making it clear that any future increase will not be more than a specific amount, say five per cent, to protect your tenant.

3. Non-resident sellers:

If a seller is a non-resident, 25 per cent of the entire purchase price needs to be held back until the seller satisfies their income tax obligations relating to the sale. In some cases, this 25 per cent holdback can result in there not being sufficient funds available on closing to pay the mortgage on the property and the real estate commission. This is one of the reasons to always do the FINTRAC identification as soon as possible. By asking for a driver’s licence, you can usually determine right away that the seller will be here for closing. When the seller signing the agreement is out of the country, make sure you ask about residency as soon as possible.

4. Be extra careful with assignments:

I expect there to be more assignment deals this year, especially if buyers who purchased two to three years ago are now having difficulty closing. Make sure to make the deal conditional on lawyer approval as there are HST and other issues relating to when the original deposits and the profit are to be made payable. Also, you need to be careful to make sure that your own commission on any assignment agreement is paid as soon as the builder consents to the deal, or else you may have to wait an extra year before you get paid.

5. Get everyone to sign the buyer representation agreement:

Too many times I have seen situations where, for example, one spouse signs the buyer representation agreement and then the other spouse or an adult child goes out and buys a property, to try and avoid paying the agent their commission. Or they buy in a company name to try and hide their identity.

Make sure you always get everyone to sign your agreement, even if it means going more than once to sign, especially if one of the spouses is out of town.

© 2017 REM Real Estate Magazine

Will your home be taxed?

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Each year, every owner of residential property will have to make a property status declaration. This will determine if the property is subject to the Empty Homes Tax, also known as the Vacancy Tax.

The Province of BC’s Speculation and Vacancy Tax  is in addition to the City’s Empty Homes Tax. If you own residential property in Vancouver, you may have to pay both taxes

Properties not subject to the tax

Most properties will not be subject to the Empty Homes Tax, including those:

• Used as a principal residence by the owner, his/her family member or friend, or other permitted occupier for at least six months of the 2018 tax year
• Rented for residential purposes for at least six months of the current year, in periods of 30 or more consecutive days
• Meeting the criteria for one of the exemptions 

See if the tax applies to you

Exemptions and scenarios that may apply to you

This content is for informational purposes only. It is not intended as advice or a determination of whether your property will be subject to the Empty Homes Tax

If there is any discrepancy between the information provided here and the provisions of the Vacancy Tax Bylaw  (183 KB), the latter will prevail.  These changes are in effect for the 2018 reference period (January 1 to December 31, 2018.)

Exemptions:

You will not be subject to the tax if you can meet one of the exemptions listed below.

If you claim one of the following exemptions, you must be able to provide evidence that validates your declaration if asked.

Clarifications to the Vacancy Tax bylaw were made on September 18, 2018. These changes are in effect for the 2018 reference period (January 1 to December 31, 2018).

Evidence documentation is not required at the time of declaration and will only be requested if the property is selected for audit.

Exemption types

Occupancy for full-time employment

Owner in care

Estate of deceased

Transfer of property

Undergoing redevelopment or major renovations

Strata rental restriction

Court order

Limited use residential property

© 2019 City of Vancouver

You can get a great deal if a home is part of an estate

Leo Wilk
REW

You can get a great deal if a home is part of an estate – but there are particular conditions you should include in your offer

First, what is probate?

Probate, in short, is the court procedure for two things:

• Official approval of the will by the court as the valid last will of the deceased; and
• Appointment of the person (or persons) who will act as the executor of the deceased’s estate.

Essentially, it is the court process that gives the executor (or executrix) the authority to act on behalf of the deceased.

Special Subjects in Your Offer

In probate real estate purchases, because reaching probate does take some time, you can be hit with delays in the purchasing process.

When you make an offer on a home or condo under probate, you will have all your usual subjects as a buyer (inspection, financing, and so on). However, you must also have a subject for the seller that reads:

“Subject to the Seller receiving the following by _   (date)__:

“(1) a copy of a grant of probate or letters of administration that allow the Property to be sold; and

“(2) assurance that everyone entitled to claim under the Wills, Estates and Succession Act has waived or released their claims against the Property. This condition is for the sole benefit of the Seller.”

To make sure the offer does not collapse if probate is not granted by the time you have reached the subject date, you may want to add an automatic extension of the subject. This way you are covered if probate has not been granted by your subject date and you will not have to get everyone to sign an addendum. 

You may also want to add an additional clause about extending the closing date if probate is delayed. It will read something like, “If probate has not been granted by the closing date, the closing date will automatically be extended to 15 business days after probate is granted.”

Typically you will want to make this subject-to-probate date two to three months away.

What Happens Next?

Once an accepted offer is handed in to the party in charge of probate, they will expedite the file. Which means, it goes from the bottom of the pile of documents to the top at the lawyer’s office. 

Once the buyer has removed their subjects the property is technically sold. Unless something very unforeseen happens during the time the lawyers are granting probate, the property will sell. However, until the seller (the executor) removes their subject to probate, the listing will stay live. This means that, despite all the listing agent’s attempts to communicate that it is technically sold, they will still be inundated with calls and inquiries about the property.

When it comes to a probate sale, it would be wise to hire an agent who has some experience in this area, as there are many things that they know where others would not.

© 2018 REW. A Division of Glacier Media

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The first PTT calculator is what we call our standard calculator. This is to be used if the Buyer is not a First Time Home Buyer, or if they are purchasing a used home, not a new one.

?Sea of red flags? ignored as offshore cash was allowed to float through trust account

IAN MULGREW
The Vancouver Sun

A Law Society of B.C. disciplinary panel has found a West Vancouver lawyer guilty of professional misconduct for washing $26 million through his trust account.

In the face of an overheated real estate market and public concerns about foreign capital last year, the society cited Donald Gurney over his involvement in four questionable three-year-old transactions.

The panel found he ignored a “sea of red flags” and allowed $25,845,489.87 of offshore cash to float through his trust account between May and November 2013.

He charged a 10th of one per cent of the amount, given “the risk involved.” But the panel did not find Gurney a credible witness, particularly when it came to what he knew and the calculation of his fees.

“He was evasive in that he would not answer questions put to him and was self-serving with regard to his knowledge of the law society accounting rules,” it said.

Gurney made no inquiries regarding who the lenders were, the source of the funds or the client’s use of the money from the dodgy transactions that occurred under a score of “suspicious circumstances,” the society said.

With the veneer of legitimacy he provided, that cash was beyond the usual purview of the authorities and could have been used for any purpose, including to finance crime or even terrorism.

“For a lawyer to ignore the flags that raise a reasonable suspicion and to make minimal inquiries beyond dealing with client verification and the asking of pro forma questions in the circumstances of this case leads to the inexorable conclusion that (Gurney) has committed professional misconduct,” the panel concluded in its 33-page decision.

Phil Riddell, the chair from Port Coquitlam, and Gillian Dougans, a lawyer from Kelowna, added: “This is a case in which (Gurney) has shown a gross culpable neglect to his duties to make reasonable inquiries, and we also find that (Gurney) used his trust account in the absence of providing legal services.”

A second hearing, not yet scheduled, will determine the appropriate sanction.

A disappointed Gurney said Thursday he is reviewing the decision and considering an appeal.

“We are satisfied from our inquiries that there was no impropriety or illegality associated with these transactions,” he said in a three-page statement that questioned whether the expectations of the panel were realistic.

Gurney’s lawyer Paul Jaffe said: “For the purpose of demonstrating a strong response to an industry that, it seems, involves considerable money laundering, the LSBC has gone after my client — a lawyer who, with over 49 years at the bar, who had, until now, an excellent reputation without a single disciplinary matter over his entire career — but who, according to the LSBC, failed to investigate the representations of his client — truthful ones, as it turns out — and even though this particular client has no history of any criminal, regulatory, taxation, civil, investigatory and/or any other kind of proceedings.”

The panel said the offshore funds were converted into bank drafts and Gurney knew little about the borrower, the purpose of the loans, the lenders, their businesses, their principles or the relationships.

It added that Gurney should have more closely investigated the transactions and established “why companies in Nevis/Marshall Islands/Belize would lend a total of $26 million to a newly incorporated B.C. company with, as far as he knew, no assets and no plans.”

Gurney acted for C Inc. — formed in December 2012 and whose sole shareholder as of May 1, 2013 was someone identified only as IJ — the borrower in four line-of-credit agreements.

The agreements were all unsecured, one page in length and were remarkably similar, except for the parties, the loan value and the choice of forum in the jurisdictional clause.

Gurney described his role as facilitating the receipt and disbursement of loan advances and converting the funds from U.S. to Canadian dollars.

The first transaction, involving G Capital, saw the funds deposited and Gurney issue a statement of account, purchase a bank draft payable to C Inc. and issue a trust cheque to himself to satisfy his account before he was even retained by C Inc.

The panel said there was no professional need for Gurney to be involved in the transactions that came to light during a compliance audit, a regulatory oversight check the society makes on law firms roughly every six years.

He also had no background in securities law or offshore banking. Gurney’s practice included some commercial real-estate work, conveyancing and a smattering of foreclosures.

He has an active commercial lending practice acting for mortgagors and mortgagees, the panel noted, including three mortgage investment corporations that are winding up after having had $30 million to $35 million to loan out to the private sector at their peak.

The law society maintained at the January hearing it was of fundamental importance that lawyers ensured their trust accounts and solicitor-client privilege were not misused.

Because they are exempt from the usual money-laundering laws, the legal watchdog maintained lawyers exercised a gatekeeper function and must properly scrutinize trust-account transactions.

The panel agreed: “Prior to the lawyer becoming involved in a transaction, if there is a reasonable suspicion that the transaction may involve illegal activities in Canada or abroad the lawyer has a duty to make reasonable inquires … one would have to ignore the sea of red flags that were raised by these transactions.”

© 2017 Postmedia Network Inc

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In an effort to attract more skilled foreign talent, Canada is making it easier for applicants with siblings in Canada and those who are bilingual in French and English to immigrate permanently. As of June 6, 2017, qualifying applicants will receive an advantage in Express Entry, Canada’s online system for inviting immigrants to apply for permanent residence in Canada.

Canada’s Express Entry system assigns a points ranking to foreign nationals interested in coming to Canada. Draws occur at regular intervals based on points. Competition to come to Canada is steep, and the points score is based on age, language ability, Canadian and foreign work experience, and numerous other factors. Applicants who want to come to Canada are always seeking ways to improve their score, whether improving their language ability, undertaking additional education, or obtaining a job offer.

Applicants with strong French and English skills will now receive a significant advantage in Express Entry: up to additional 30 points. French-speaking individuals moving to provinces other than Quebec have been able to obtain temporary immigration for the last year under the Mobilité francophone program, which allows for up to two year work permits. However, many of those applicants now have the option of applying for permanent residence, and setting themselves apart from others in the Express Entry pool with the benefit of these new points systems.

Those applicants with Canadian or permanent resident siblings will also receive an advantage of 15 points, provided the sibling is at least 18 years old and lives in Canada.

These additional changes will result in numerous applicants being invited to apply to Canada’s permanent immigration programs. It will also aid employers in hanging on to key foreign talent, and boost the francophone population of Canada.

The changes are welcome. Family reunification is one of the key goals of Canada’s immigration legislation. The provision of points for siblings is a recognition of the crucial role that family plays in the success of a new immigrant, and of that new immigrant’s chance of remaining in Canada after obtaining permanent resident status.

This isn’t the first time Express Entry points have changed. In November 2016, applicants with Canadian post-secondary education obtained a between 15 and 30 point bonus and those senior executives and others with a more than one year job offer a between 50 and 200 point bonus. These points benefits remain in place, and benefit graduates, NAFTA professionals, and intra-company transferees.

For more information on Express Entry and Canada’s immigration programs, both temporary, permanent, and family, contact a member of our Immigration Practice Group.

©2017 Alexander Holburn Beaudin + Lang LLP

Irina Sfranciog and Rachael Segal
REM

In Canada, resident sellers of a principal residence are usually eligible for an exemption from the capital gains tax that would otherwise be triggered by the sale of a principal residence. Non-resident sellers must pay a capital gains tax of 25 per cent on the profits from the sale of a residential property.

In Mao v Liu (2017 BCSC 226), the court was asked to determine whether a notary public was negligent and therefore obligated to pay the capital gains tax triggered by the sale of a residential property. The negligent act in question was the notary public’s failure to confirm whether the seller was a Canadian resident.

The facts underlying the Mao v. Liu action were relatively straightforward. In the period following the execution of the Agreement of Purchase and Sale for a residential property, the lawyer for the seller was asked for but refused to sign a statutory declaration regarding the residency of the seller. Upon closing, with no clearance certificate and no holdback in the Agreement of Purchase and Sale, the Canadian Revenue Agency required that the buyer pay the capital gains tax owing in the amount of $695,000. The buyer then sued the notary public seeking damages associated with this payment.

This case turned upon the question of whether the notary public had a duty to make further inquiries to determine the residency of the seller and whether that duty was breached.

In the decision, Justice Affleck stated: “In my view the defendants agreed to make the ‘reasonable inquiry’… but failed to do so, and failed to advise the plaintiffs of their potential tax liability.” Ultimately Justice Affleck found the notary public liable to the buyers for the full amount of the capital gains tax triggered by the sale of the property.

The law is clear that buyers are required to be diligent and make reasonable inquiries to ascertain the tax residency status of sellers. If the buyer fails to make reasonable inquiries, the buyer and his or her agent can be assessed for the entirety of the capital gains tax.

Conducting fulsome due diligence at the outset of a real estate transaction cannot be disregarded, as the penalties for failing to do so can be significant. It is now possible that a court could find that notaries’ public and real estate duties go beyond general inquiries and must determine whether there are any potential liabilities for their clients. This duty puts the onus on both buyers and their agents and representatives to ensure specific inquiries are made that previous to this decision, would have been expected only from a lawyer.

Determining the residency status of the seller should be completed well before the closing date and should go beyond a simple conversation. It would be prudent for buyers and their agents to request that evidence of the seller’s residency status be a condition of the purchase. Alternatively, agents should also consider a clause in their retainer agreement releasing the agent of all liability associated with any unpaid taxes after “reasonable inquiries” have been made. The problem with this is that the purchaser, the party in the transaction who should be held at the lowest possible standard when it comes to assessing risk, would still remain liable to CRA for the unpaid taxes. While buyers are able to withhold a portion of the purchase price in situations where the seller is known to be a non-resident, an avenue to withhold part of the purchase price when the seller’s residency is unknown should be adopted as well.

Whether you are an agent or a buyer, the bottom line in buying real estate in Canada is to take extra precautions when purchasing from a non-resident. Be certain to ascertain the legal residency status of sellers prior to the closing date.

© 2017 REM Real Estate Magazine

Deborah Upton
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Based on a recent action by CRA and a BC Court decision, we need to make you aware of some important steps to take to protect yourself.

Here is an excerpt from a media release about the recent BC Court ruling:

“This ruling targets a weakness in Canadian laws that often leads foreign owners of real estate in cities such as Metro Vancouver and Toronto to claim they are “residents of Canada for tax purposes” when they are not.

The landmark B.C. decision requires notary public Tony Liu to pay his client more than $600,000 because Liu failed to adequately determine whether the Vancouver house his client was buying for $5.5 million had been owned by a tax resident of Canada.

As a result, the Canada Revenue Agency did not get paid, at the time of the sale, the 25 per cent capital gains tax it charges non-resident sellers of Canadian property on any profit they make on the sale.

So the CRA later demanded the buyer pay the $600,000 in tax. The buyer, in turn, successfully sued Liu, arguing Liu failed to discover the seller was not a tax resident of Canada.

The CRA considers people who don’t live in the country at least six months a year and don’t pay income taxes here to be foreign property investors and speculators and thus subject to capital gains taxes. 

As a result of this case we asked Richard Bell, Bell Alliance to provide his advice to us, as a firm that specializes in real estate conveyance. 

“As an absolute minimum make sure that the Residency box is checked off 100% of the time by the seller.

CRA has a mandate to go after these sellers, and if no withholding tax was collected, they have the ability to go after the buyer – which means Realtors  will also be on the buyer’s radar for a law suit. 

Bell is also seeing cases where the seller incorrectly checks off the Resident box, when they’re not a resident, which again, could come back on thermal estate  agent.

He says,  if our buyer agent is showing a vacant house, with a clearly non-resident seller, which is a common scenario, and the box is checked off as Resident, he said our agent needs to pass that along to the buyers lawyer or notary, and they will deal with it. 

He said the lawyers know less about the seller than we do, but they get the seller to sign a declaration form when they have good cause to do so and it protects them from this situation.

In this case the notary did not get the seller to sign a declaration that they were a Canadian Resident, the tax was not collected, CRA claimed the tax from the buyer and the law suit followed”.

What steps do we take now to protect ourselves:

1. Always ensure the box declaring Canadian residency has been completed; as the buyer’s agent you have a duty to protect your client. 
   As the sellers agent you have a duty to ensure the Residency box is checked off on the contract.
   Our conveyance staff will be monitoring the Residency box on all Contracts of Purchase and Sale and if not checked off will report it to the Managing Broker for follow up.
2. Always alert the Closing lawyer or notary if the home is unoccupied and the seller has declared themselves as a resident. Save that notice in your file as a reference if needed.

Canadian Real Estate Wealth

With the Canada revenue agency now tracking house flippers – thanks to last year’s mortgage rule changes – are you worried further crackdowns on investors may soon come?

Starting this year, Canadians will have to fill out an extra section on their tax return, the Schedule 3 “Capital Gains (or Losses)” in order to claim their principal residence and earn a tax break. Homeowners will provide information on the date of acquisition, the address, as well as other details for any sold home claimed a principal residence.

The government claims the change was made to “improve compliance and administration of the tax system.”

However, it has some speculating that the new requirement, announced in October 2016, was established in a bid to better track home flippers who may be tempted to claim investment properties as principal residences. 

With this additional data, the government will get a better sense of just how prevalent house flipping is and, perhaps, what influence it may be having on housing prices.

And as we all know, the government has been able – and very willing – to crack down on home buying segments it believes are contributing to inflated housing prices. 

So it begs the question: Are you afraid this increased data could lead to further housing rules that target investors?

After all, such policies have been suggested by various industry players. 

Copyright © 2017 Key Media Pty Ltd