What do you do where you are the listing realtor in a transaction where the sellers are leaving Canada or have already left before the transaction closes?
Section 116 of the Income Tax Act requires that 25% of the sale price be withheld until a compliance certificate is obtained where you are dealing with non-residents. The Income Tax Act contains no definition of residency and the CRA will consider each case on its merits. The primary residential ties of an individual are his dwelling place, spouse and dependants and personal property and social ties. As you know, there is no capital gains tax on a principal residence but did you know that when the CRA looks at an application for a compliance certificate they will not issue one when there are outstanding debts that the seller owes to the CRA unless those debts are paid.
The question of whether the sellers are residents of Canada for tax purposes can be complicated. The sellers generally consider that if they are non-residents and the 25% holdback is in effect then someone is punishing them when it is simply the requirement of Section 116 of the Income Tax Act which is put there to protect the purchaser because if money is owing to the CRA, the CRA will go after the purchaser.
If you are the listing realtor and your seller is leaving Canada then be proactive. Make sure the seller’s lawyer gets the offer once the conditions are removed so that the application for the Compliance Certificate can begin immediately. It could take 2-4 months to obtain. Have the sellers talk to a tax accountant or lawyer so they can get correct advice from the start. Often, if the husband is working out of Canada but his wife and children are still here, then all will be considered residents of Canada for tax purposes.
The best solution for everyone is that the sellers stay in Canada until they are paid out on the sale or at the very least, that the wife and children are here at closing.