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FEDERAL INCOME TAX - Non-residents - Withholding tax

Thursday, April 06, 2017 @ 8:31 AM  

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Application by the plaintiffs for the summary trial of liability with damages to be assessed and application by the defendants for an order permitting them to deliver a third party notice. The plaintiffs alleged that they entered into a contract to purchase real property. CE International Resource Holdings LLC (CEIR) was a creditor of the registered owners of the property and had conduct of sale. The plaintiffs retained the defendants to complete the conveyance of the title to the property to them, including making inquiries as to the residency status of the seller. The defendants drafted a declaration concerning the residency status of the registered owners, which the lawyers for CEIR refused to sign. Despite not having any indication of the residency of the registered owners, the defendant Tony Liu Notary Corporation proceeded with the conveyance. One of the registered owners was not a resident of Canada at the time of the purchase. Subsequently, the Canada Revenue Agency (CRA) advised the plaintiffs that no certificate of compliance had been obtained in relation to the property and that they were obliged to pay withholding tax which was assessed at $695,000. The defendants admitted the facts in the notice of claim, but alleged that the plaintiffs entered into the agreement for purchase and sale without conditions, before engaging them to complete the transfer, and were therefore bound to complete the purchase. The defendants also asserted that the title search indicated that the registered owners were residents of Canada at the relevant time. They further alleged that they requested that the proposed third party Borden Ladner Gervais (BLG) provide certain undertakings, that BLG was obligated to withhold a purchase of the sales proceeds to satisfy the CRA pursuant to the order approving the sale, and that BLG confirmed in the Seller's Statement of Adjustments that the seller was a Canadian resident. As a result, the defendants claimed that any loss or damage suffered by the plaintiffs was the fault of the registered owners, CEIR and BLG.

HELD: Application by the plaintiffs allowed and application by the defendants dismissed. The matter was suitable for summary trial. The plaintiffs contracted with the defendants to advise on whether the registered owners of the property were Canadian residents at the time of the purchase. While the defendants made an inquiry of BLG about the residency of the registered owners, when they were told BLG could provide no information on that issue, the defendants made no further inquiries. There was no evidence to suggest that BLG was obliged to pay the non-resident withholding tax. As a result, the defendants were liable to the plaintiffs. There was a lengthy delay by the defendants in seeking to take third party proceedings and they provided no explanation. There would be prejudice to the plaintiffs if third parties were now added.

Mao v. Liu, [2017] B.C.J. No. 258, British Columbia Supreme Court, K.N. Affleck J., February 10, 2017. Digest No. TLD-Apr32017010