Brad Taylor, CPA, CA, TEP, Tax Manager, Kingston Ross Pasnak LLP, Edmonton, AB, DFK Affiliate Firm
To facilitate the Canadian Government collecting its income tax on dispositions of “taxable Canadian property” (TCP) by non-residents, Canadian tax law makes purchasers of TCP liable for remitting Canadian withholding tax. As a result, any purchaser acquiring TCP from a nonresident vendor should always consider whether a portion of the purchase price should be remitted to CRA. Failure to do so could result in significant costs.
TCP generally includes, but is not limited to:
– Real property in Canada including Canadian resource property
– Shares of private corporations *
– Certain public company shares*
– Certain interests in Trusts and Estates*
* If, at any time in the past 60 months, more than 50% of their value is derived from Canadian real property, Canadian resource property, and certain other properties.
Generally, the purchaser must remit 25% of the purchase price for TCP directly to CRA, unless the property is Treaty protected, or the non-resident vendor has previously submitted Form T2062 and obtained a Certificate of Compliance (CC) reducing the required withholding [Subsection 116(4)]. The vendor is required to file a T2062 no later than 10 days after the transaction. Late filing of Form T2062 can result in a maximum penalty of $2,500 [Subsection 162(7)]. Unless a CC waiving any withholding is received, the purchaser must remit the withholding to CRA no later than 30 days after the end of the month in which the transaction occurred. Failure to comply could result in a 10% penalty (Subsection 227(8)), plus interest charges.
Given the potential costs, purchasers should never assume the vendor has been issued a CC without verification, as the provisions in Section 116 of the ITA effectively require the non-compliant purchaser to pay the vendor’s taxes if a CC has not been issued.
In a December 19, 2014, Tax Court of Canada case (0lympia Trust Company vs. H.M.Q. TCC 2013-189(IT)G, the Trustee of various self-administered RRSPs, and not the RRSP holders themselves, was held liable for unremitted withholding taxes on a purchase from non-residents. In a simpler example, the issue of beneficial ownership could arise where a parent purchases a home for their adult child. If the vendor is a non-resident and proper measures are not taken to ensure that withholding taxes are remitted, then the generous parent could be liable for the applicable withholding tax on their child’s home – 25% of the purchase price, plus penalties and interest.
This is an article from our fall 2015 DFK Newsletter.