Archive for the ‘Real Estate Legal Articles’ Category

LAW SOCIETY PANEL FINDS WEST VAN LAWYER GUILTY OF WASHING $26M

Friday, May 26th, 2017

?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

Permanent immigration to get easier for French and English speakers, those with Canadian siblings

Friday, May 19th, 2017

other

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

B.C. court rules notary public is responsible for tax owed by buyer

Monday, May 8th, 2017

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

Court Ruling Increases Risks to Realtors and their Clients

Monday, April 3rd, 2017

Deborah Upton
other

 

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.

Does the CRA flipping reporting have you worried?

Wednesday, March 8th, 2017

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

CRA is coming…

Tuesday, February 14th, 2017

other

Here is the new form and the new rule relating to the sale of real estate.
Taxpayers must NOW REPORT the sale of their home on their tax return.
If you’re claiming an exemption from the capital gains tax, in the past that exemption was automatic.

The CRA will have authority at assess capital gains tax
on real estate that is not reported on the tax return for the year in which it is sold.
Ottawa will work with provincial governments (which maintain land registry operations)
to ensure that all residential real estate transactions are recorded and taxed as required.

Tax returns, starting this April, will require details on the date a property was acquired,
the proceeds of disposition and a description of the property.

To qualify for a capital gains tax exemption,
you must complete and file a separate Schedule. (attached)

The full exemption may not be granted, depending on the details provided.

**If you sell your home but forget to include this information on your return,
the CRA will not allow the proceeds to be tax-free. In that case you must ask the CRA to amend the return. This amendment will be granted “in certain circumstances” but may also come with a penalty equal to the lesser of $8,000 or $100 per month from the sale date to the request date.

**If you have a suite in your home, then sell it, the selling price must be split and reported.
Part of it will qualify to the tax exemption and part will not.

In markets with elephantine gains in home prices, this could be quite the bombshell.

CRA Whistle Blower program – Federal programs tackle offshore avoidance evasion

Saturday, February 11th, 2017

JARED LINDZON
The Vancouver Sun

A vast majority of Canadians pay their fair share of taxes, but those who don’t put an increased burden on the rest of us. That is why the Canada Revenue Agency (CRA) has implemented initiatives to help Canadians participate in the efforts to help fight offshore tax avoidance and evasion.

The Offshore Tax Informant Program (OTIP) rewards those who come forward with information regarding major offshore tax avoidance that leads to the collection of taxes owing. OTIP has two objectives: encourage those with information to come forward to ensure the fairness of the tax system for all Canadians, and discourage those who are contemplating breaking the law, as there is a high probability that they will get caught.

To target the most serious cases, the CRA only offers an informant a contract leading to an award if the potential assessment of federal taxes, excluding interest and penalties, exceeds $100,000.

Once the taxes owed are collected by the CRA, a reward of between five and 15 per cent of the federal taxes collected (not including interest and penalties) will be awarded to the individual, providing he/she meets all the necessary requirements of the program.

Any individual, no matter where in the world, is eligible to participate as an informant, subject to certain limitations.

“The Offshore Tax Informant Program is an important tool the CRA has at its disposal to combat tax avoidance and evasion,” explained Lisa Anawati, deputy assistant commissioner of the CRA. “Through this program Canadians can play a role in combating tax avoidance and evasion, an issue that impacts us all.”

The initiative is part of a global effort to reduce international tax avoidance and evasion. It also mirrors other programs that are currently being pursued by the Organisation for Economic Cooperation and Development (OECD) and G-20 countries, such as the Whistleblower Office that was established by the Internal Revenue Service (IRS) in the United States.

“Fighting international tax evasion and aggressive tax avoidance is a global issue that goes beyond Canada’s borders and requires international solutions,” Anawati said. “That is why we are working within legal frameworks with our international partners and sharing best practices as well as information, to unravel complex tax structures.”

Information provided through the program will remain confidential, as will the identity of the individual providing the information, unless they are required to testify as part of an investigation.

Those who have been convicted of tax- evasionrelated offences in the past are barred from participating in the program. All calls made to the toll-free tip line are kept confidential, and all information provided over the phone is collected on a no-names basis to protect informants’ identities.

“This program is proving to be very useful,” Anawati said. “As of Dec. 31, 2016, OTIP has received 407 written submissions, 126 of which are active submissions still being reviewed — and, furthermore, has entered into over 25 contracts with individuals who have provided information.”

Those with information are encouraged to call the dedicated North American toll- free number ( 1- 855345-9042) or local number (613-960-4265) that can be reached from anywhere in the world.

Canadians who want to voluntarily correct their tax filings are also able to do so through the CRA’s Voluntary Disclosure Program ( VDP). Through this program, individuals, employers, corporations and other taxpaying entities are able to correct unreported income, capital gains, misappropriated funds, unreported GST/HST, over-claimed input tax credits and unfiled information returns without being penalized or prosecuted.

Canadians who want to take advantage of the VDP program must complete form RC199 or send a letter providing the same information as the form to the CRA by mail, fax or online.

“International tax evasion and aggressive tax avoidance carry a cost for all Canadians and can have serious consequences for those who choose to participate in these activities,” Anawati said. “We strongly encourage those who wish to correct their tax affairs to do so to gain peace of mind.”

While international tax evasion and aggressive tax avoidance remain a significant problem around the world, proactive steps like the establishment of the VDP and OTIP help ensure everyone pays their fair share of taxes.

For more information on the OTIP, visit http://www. cra-arc.gc.ca/gncy/cmplnc / otip-pdife/menu-eng.html

For more information on the VDP, visit http://www. cra-arc.gc.ca/voluntary disclosures/

© 2017 Postmedia Network Inc

2017 Property Assessment Notices

Wednesday, December 21st, 2016

other

Property owners in BC will start to receive 2017 property assessment notices in early January 2017. These notices are prepared by BC Assessment, a provincial Crown corporation that classifies and values all real property in British Columbia. Visit the BC Assessment website to learn more about assessment notices (link is external) and property values (link is external).

The Land Title and Survey Authority of British Columbia (LTSA) is responsible for administering the land title and survey systems of BC that provide the foundation for all real property business and ownership in the province. The LTSA delivers secure land titles through timely, efficient registration of land title interests and survey records. Your title is a source of some of the information shown on your property assessment notice.

Contact BC Assessment (link is external) if:

  • You did not receive an assessment notice (link is external). The 2017 property assessment notices are prepared using information current as of November 30, 2016. If your property transaction occurred after this date, the information may not have been included in the assessment roll used to generate the notices.
  • You need to discuss your assessment with a representative.

If your address information needs to be updated, you must notify both organizations:

The LTSA also handles any name changes required to the assessment notice. Complete Form 17 -  Change Name and submit it to a land title office in person or by mail. Learn more about what else is needed to change a name on title.

The general public should contact lawyers or notaries to conduct filings, such as removing the name of a deceased person from title.

Customers can sign up for a myLTSA Explorer account to conduct searches for titles or plans, or use the services of a Registry Agent to obtain copies of documents. See Hire a Professional to Assist You for contact details.

The LTSA does not provide legal advice and cannot assist customers with completing application forms for land title registration or conduct title searches over the telephone.

Copyright © 2016 Land Title and Survey Authority of British Columbia.

New program partners with first-time homebuyers as they enter the housing market

Friday, December 16th, 2016

BC Gorvernment
other

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What happens when there is a fire before the property completes

Thursday, November 24th, 2016

WHEN DISASTER STRIKES

Jennifer Clee
other

What happens when a property is damaged by fire before completion? Must the buyer complete or can the buyer walk? What if the buyer wants to complete with a price adjustment? A buyer’s options will depend upon a myriad of factors including the law, facts, contract terms and the parties’ conduct.

In Gill v. Zhang,1 three days before completion, the buyers learned that the property they had contracted to buy had been damaged by fire and could not be repaired before completion. Despite the damage, the buyers still wanted to complete, but with a price adjustment.

The parties’ version of the events following discovery of the fire conflicted. The buyers maintained they remained willing to continue with the contract, subject to receiving information from the sellers about the fire and their insurance and negotiating a price adjustment. The sellers did not produce the requested information and refused to discuss any accommodations that would allow the contract to complete, maintaining that the buyers’ lawyer had told the sellers the sale would complete with no price change. The sellers advised the buyers to complete or alternatively, consider the contract terminated. The sale did not complete and the buyers sued the sellers for specific performance with abatement of the price.

The Court considered the following issues:

 

1)

Whether the sellers breached their obligation to deliver the property in the same condition as when viewed by the buyer (clause 8 of the Contract of Purchase and Sale);

 

2)

Whether the buyers breached their obligation to complete on the completion date (clause 12, which relates to time being of the essence); and

 

3)

Whether specific performance with an abatement of price was an appropriate remedy.

The Court found that the sellers breached the contract by their inability to deliver the property in accordance with clause 8 and by their failure to act reasonably to address the consequences of the fire.

With respect to the second issue, the Court cited the buyers’ options given the sellers’ breach: either to affirm the contract (in which case the contract remained in force with all its original terms) or to accept the sellers’ repudiation (in which case both parties were relieved of their contractual obligations). The Court acknowledged, as a general principle, the buyers’ right to a reasonable opportunity to assess their position and the damage before electing to affirm or to accept the sellers’ breach.

It was evident, from the correspondence between the buyers’ lawyer and sellers’ notary, that the buyers had not accepted the sellers’ repudiation, but rather wished to continue with and to affirm the contract subject to receiving more information and to negotiating a price adjustment.

The issue then was whether the buyers had affirmed the contract, rendering the buyers in breach of clause 12 when they did not complete. This issue turned on credibility, given the conflict in the parties’ evidence. The Court did not accept the sellers’ evidence, finding the buyers had not affirmed the contract, but rather had indicated their intention to affirm with a price adjustment. Consequently, the Court found the buyers had not breached their obligations under the contract and the sellers could not require payment of the balance of the purchase price in circumstances where they were unable to convey what they were required to under the contract.  

The Court granted the buyers’ application for an order for specific performance with an abatement of the purchase price after the Court accepted the property was sufficiently unique to the buyers.

As Gill illustrates, when a property has suffered damage before completion, a party’s conduct can significantly impact their legal rights. Accordingly, if a licensee learns, prior to completion, that a property has been damaged by fire, flood or by some other event, the licensee should immediately advise their client to seek legal advice.

Copyright © British Columbia Real Estate Association