Legally Speaking - April 2017 (493)
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Number 493, April 2017


Oana HyattOn March 25, 2017, several local newspapers ran a story with the alarming headline, "House buyer beware: Landmark court ruling will shake real-estate industry."1 The story referred to a February 10, 2017 BC Supreme Court judgment2 and left licensees wondering about this decision's impact on their duties to ascertain the Canada residency status of sellers for the purposes of the Income Tax Act. Despite the heightened tone of the story, the court's decision does not establish any new duties for licensees in this respect.

There is significant risk to buyers dealing with non-resident sellers due to the Income Tax Act.3 In some circumstances, the Act allows the Canada Revenue Agency (CRA) to recover from the buyers the non-resident withholding tax, which the non-resident sellers in this case should have paid, in the amount of $695,000. Where a buyer makes "reasonable inquiry" and has no reason to believe the seller is non-resident in Canada, the buyer might escape liability under the Act.

The issues in this case were: 1) whether the notary acting for the buyers had made "reasonable inquiry" as to the residence status of the seller, and 2) whether the notary had advised the buyers of their potential tax liability if the seller was not resident in Canada. Note that the case did not address the role or duties of the buyers' agent in this situation. The evidence was that the buyers' notary had inquired with the sellers' law firm as to whether the sellers were Canadian residents at the time of purchase. The law firm had responded that they had no information on this topic, as they were only acting for a creditor of the sellers, who had obtained conduct of the sale of the property pursuant to a court order. The notary then took no further steps to ascertain the residence status of the sellers.

The court found that the notary had failed to make "reasonable inquiry" as to the residence status of the sellers, and had failed to advise the buyers about the potential tax liability. While the buyers are liable to the CRA for some $695,000, plus any applicable penalties and interest, there has been no determination at this stage of the case as to whether the buyers are entitled to recover the entire amount from the notary. It is possible that, at the next stage of the case, the notary might be able to reduce their liability by raising some defences, or pointing fingers at other persons involved in the transaction. The notary did attempt to add the buyers' agent as a third party to the action for this purpose, but that application was refused by the court as it was brought forward too late in the litigation. The notary can still commence a separate action against the buyers' agent, although it's difficult to see how the buyers' agent could be at fault in that case. The decision has been appealed by the notary.

As of March 30, 2017, the standard form Contract of Purchase and Sale (CPS) was amended to include the buyers' declaration as to citizenship (as required, in respect of the BC 15 per cent foreign buyer tax). Licensees should not give advice to their clients on how to complete this declaration, nor on how to interpret any declaration made by the other party to the transaction. However, as a best practice, licensees should recommend that their clients seek legal or accounting advice with respect to tax issues. A reminder to this effect now also appears on the "Information About This Contract" sheet appended to the CPS.

The Real Estate Council of British Columbia advises that brokerages should also be aware of this matter—particularly where a CPS is assigned to a non-resident buyer and the profit is to be paid to the assignor before completion of the original deal.

Oana Hyatt
B.Sc.(Pharm), LL.B.

  1. Todd, Douglas, "House buyer beware: Landmark B.C. court ruling will shake real-estate industry," Vancouver Sun (March 25, 2017), online:
  2. Mao v. Liu, 2017 BCSC 226.
  3. Income Tax Act, R.S.C., 1985, c. 1, s. 116.
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