A Kelowna real estate agent and a lawyer are on the hook for more than $170,000 after failing to inform their clients of B.C.'s foreign-buyer's tax.
In a recent B.C Supreme Court ruling, Justice Alan Ross ruled real estate agent Dean Desrosiers and lawyer Roy Sommerey both share some responsibility for their client's large tax bill, after Robert Shave and Kelly Ashford were hit with a $172,400 foreign-buyer's tax bill after purchasing a home in Kelowna in June 2018.
The couple immigrated to Kelowna from Great Britain in January 2018, after Shave was hired for a teaching position at UBC Okanagan.
Their timing wasn't great though, as B.C. implemented the new foreign-buyer's tax on Feb. 20, 2018, which levied an additional 20% tax on home purchases in certain areas of B.C. made by people who are not Canadian citizens or permanent residents. The tax applies to homes in the Regional District of Central Okanagan.
In May 2018, their offer on a property on Kelowna's Bennett Road was accepted. In the purchase contract, they declared they were not Canadian citizens or permanent residents. A section of the contract states the buyer and seller should review their tax implications with a lawyer or accountant.
During the proceedings, the couple retained Sommerey of Doak Shirreff Lawyers LLP to assist them with the purchase of the home. In their introductory emails, Shave said “Kelly and I are new to Canada (we arrived from the UK in January this year) and so we are still somewhat naïve to the house buying process over here.” Sommerey responded “Welcome to Canada!”
Ultimately, Shave and Ashford were unable to secure financing on the Bennett home. Shave texted Desrosiers on June 11, 2018, that they were “not Canadian and we don’t have PR [permanent residents] we can’t make the finances work on a reno of this scale.”
Then in June, the couple got another accepted offer of $862,000 for a home on Kelowna's Upper Canyon Drive.
Eight days prior to entering into the second contract, Desrosiers says he misunderstood a discussion he had with his clients and had “understood that the plaintiffs’ citizenship status had been finalized,” according to Justice Ross.
As a result, in the contract for the second home, Desrosiers changed a section stating the buyers were citizens or permanent residents of Canada. Shave and Ashford say Desrosiers never advised them of the change, and they signed the new contract without noticing it. Because the contract states the buyers should review the tax implications with their lawyer or accountant, Desrosiers argued he owed no duty of care with respect to taxation issues.
Regardless, Desrosiers never advised the couple of the existence of the newly implemented foreign-buyer's tax in B.C.
The couple once again used Sommerey to assist with the purchase. He told the court he was aware the buyers were new immigrants to Canada.
“I do not remember specifically turning my mind to the issue, but I had no reason to believe that the tax would apply,” Sommerey said in an affidavit.
“Had I turned my mind to the question of whether or not the clients were Canadian citizens or permanent residents, I likely would have noted and been satisfied with the formal declaration they made right below their signature lines on the Contract of Purchase and Sale.”
About six months after they purchased the home, Shave and Ashford received a notice of assessment from the B.C. government in the amount of $172,400 for the unpaid foreign-buyer’s tax owing on the purchase.
The couple later secured permanent residence status in Canada, but because they were not permanent residents at the time of purchase, the tax still applied.
In his judgment, Justice Ross ruled that while Desrosiers did not have a duty to provide advice as to whether the tax applied to them, he had a “clear duty to inform the plaintiffs of the existence of the tax.”
“I find that any reasonable realtor would understand that the risk, or the requirement, of paying an extra 20% for a family home would be an extremely important piece of information for prospective purchasers,” Justice Ross said.
“It is reasonable to assume that the prospect of paying an extra 20% for a residence would prevent most, if not all, purchasers from proceeding with their search for a home. That is especially true if the purchasers planned to obtain permanent resident status in the near future.”
Justice Ross also found Desrosiers was negligent by changing the section of their second contract to show they were permanent residents or citizens, without explicitly telling the buyers.
“Despite knowing that the plaintiffs had declared that they were not permanent residents in the June 11, 2018 text message, Mr. Desrosiers, for a reason that is unclear, changed the designation of residency from the Bennett Contract to the Upper Canyon Contract,” the ruling states. “Mr. Desrosiers’ explanation for that change is that his 'understanding was that their citizenship was finalized'”
As a result, Justice Ross ruled Desrosiers was responsible for 75% of the loss suffered by Shave and Ashford – $182,813 with accumulated interest – but he also found Sommerey was responsible for 20%.
“I find that the solicitor, Mr. Sommerey, having been introduced to the plaintiffs and having welcomed them to Canada, should have inquired about their residency status,” he ruled.
But Shave and Ashford shared some of the blame, 5%'s worth to be exact.
“The plaintiffs took reasonable steps and retained professionals to conduct their business. However, they did have a continuing obligation to ensure that they properly read and declared their residency status,” Justice Ross ruled.
Additionally, he ruled the couple are entitled to their legal costs from the defendants.