Attention Real Estate Lawyers: Standard Closing Documents
The Working Group on Lawyers and Real Estate has released updated Ontario-wide Standard Closing Documents (OSCD).
Of particular note, is the addition of a new document – a Section 116 Income Tax Act Undertaking (Undertaking (Non-Residency)). Closing a transaction with a non-resident vendor can be challenging if the vendor has not secured a Section 116 ITA Certificate to release the property from CRA’s purview. In the event that a certificate is not forthcoming on closing, the purchaser has an obligation to withhold part of the purchase price. In fact, Section 116 creates a tax obligation on the purchaser for the vendor’s tax liability.
Most lawyers understand that the purchaser has a right to withhold 25per cent, but in fact that is not the requirement for all properties. Some properties require a 50per cent holdback.
Do you also know that the purchaser must pay the holdback to CRA within 30 days of the end of the month in which the closing took place? For this reason, it is good practice for the purchaser’s solicitor to hold the funds in trust to ensure his/her client complies with this obligation – or be faced with interest and penalties.
This new Undertaking (Non-Residency) document can be used as a checklist, or as provided with necessary modifications, by selecting the appropriate criteria. It has a reference in its footnote to the ITA Information Circular for further information.
Visit www.lawyersworkinggroup.com to see the new updated documents (as of February 28, 2019) and other useful information for real estate lawyers. The Working Group welcomes comments and suggestions on its documents and annually undertakes a review to determine if any changes are advisable.