B.C. property-transfer tax forms to indicate seller’s residency

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The B.C. government will soon require sellers to disclose their residency during a real-estate transaction so that information can be shared with the Canada Revenue Agency (CRA).

Observers say it's a much-needed change that replaces an honour system that was open to abuse by speculators seeking to avoid paying capital-gains tax on properties they don't live in. But some worry that because the province is placing the onus for confirming that information on the buyer, it exposes them to potential fines or even jail time if they get it wrong. A buyer who doesn't properly certify a seller's residency status could also be on the hook for unpaid capital-gains tax.

The government has changed a tax form used to collect the property-transfer tax to include whether the sellers in real estate transactions are Canadian residents under the Income Tax Act. Canadian resident homeowners do not pay tax on the increased value – or capital gains – of a property designated as a principal residence. Non-residents must pay capital-gains tax at the time of a sale.

The province plans to provide that information to the CRA "to assist with auditing and enforcement of income tax laws," a provincial Finance Ministry spokesperson said in an e-mail.

The changes are a "systemic game-changer," said Richard Kurland, a Vancouver-based immigration lawyer and policy analyst.

"What was missing [before the changes] was the ability to simply check off a box, yes or no, that says, 'I am a tax resident of Canada' – that was the real battle," Mr. Kurland said.

There is such a box on some other private-sector standard real estate forms, but that information was not typically shared with the CRA and amounted to an honour system that was vulnerable to abuse, Mr. Kurland maintains.

The changes affect B.C.'s Property Transfer Tax Return (PTTR) and take effect Nov. 27.

The PTTR form has been tweaked before – this is version 29 – including last year, when the Ministry of Finance introduced questions to determine whether purchasers were Canadian citizens or permanent residents. If they're not, they must pay a 15-per-cent tax on the purchase price, in addition to the standard property-transfer tax.

Critics such as Mr. Kurland argue the more important question, for tax purposes, was whether a person was a Canadian resident under the Income Tax Act.

The revised form includes a new section that asks purchasers if they have made "reasonable efforts to confirm the residency status of a vendor" and to include the vendor's address and telephone number.

The changes pose a risk to buyers who could face penalties or jail time if they unwittingly provide false information about a seller, said Ron Usher, legal counsel for the Society of Notaries Public of BC.

"The problem is that we are asking purchasers – Bob or Sally, buying their condo – to certify, under penalty of imprisonment or a fine, information about the vendor," Mr. Usher said.

A court case earlier this year exposed the potential risk to people purchasing property. The CRA determined the buyers failed to properly certify whether the seller was a Canadian resident for tax purposes — and then sent the buyers a tax bill for the $695,000 in capital gains the seller should have paid.

The buyer successfully sued the notary. The case is under appeal.

Mr. Usher emphasizes he supports the intent of the changes, saying governments need more information to ensure appropriate taxes are paid on real estate transactions.

But he argues a better approach would be to require the seller, not the buyer, to certify a form that uses income-tax legislation, rather than the provincial property tax regime. He also says the information collected could include whether properties have been assigned, or flipped.

"They're [the government] is asking the wrong person for the data … they've now made it the legal obligation of the purchaser to provide information they have no legal right to know," Mr. Usher said.

In signing the form, purchasers certify the information on it is "complete and correct" and face penalties that include fines and up to two years in jail.

Richard Bell, managing partner with Vancouver-based legal firm Bell Alliance, has similar concerns.

"The liability being imposed on a buyer, when they rely on that information [provided by a seller], is inappropriate in my view," Mr. Bell said.

The additional information collected by the provincial finance ministry through the revised form "will help the CRA to identify taxpayers in BC who are not paying their fair share of income tax on their real estate transactions," CRA spokeswoman Heidi Hofstad said in an e-mail.