Understanding the Foreclosure Process in British Columbia

As economic pressures mount across BC’s real estate landscape, foreclosure filings are becoming increasingly common. Interest rates have risen (with only a modest softening to date), credit conditions are tightening, and prolonged development timelines have created a perfect storm for a troubled market. Whether you’re a buyer seeking opportunity, a seller under stress, a lender weighing enforcement, or a developer navigating uncertainty, understanding the foreclosure process is essential.

In BC, foreclosure is a court-supervised process. It begins when a borrower defaults on a mortgage, resulting in the lender sending a demand letter. The lender then commences the foreclosure process by filing a Petition in the Supreme Court of BC. Together with the Petition, the lender will file an affidavit attaching the mortgage documents, the demand sent, and calculating the amount due and owing. Both the Petition and the supporting affidavit must be served on the debtor and all persons whose interest in the mortgaged property is sought to be extinguished. In order to be notified of the next step, any party to the proceedings (including the borrower and any other interested parties), must file a Response to Petition setting out their position on the matter.

The next step in the process will be for the lender (now called the Petitioner) to set the matter down for hearing before the court for a declaration of the amount due and the time that the borrower will have to pay that amount due, known as the redemption period, which is typically 6-months unless there are special circumstances to reduce that time frame, such as lack of equity or wasting of the property. This order for a declaration of the amount due and setting the redemption period is known as an Order Nisi, and is typically a very short, and often uncontested application. If the debtor does not repay the amount due within the redemption period, the Petitioner may seek an Order for Sale granting the Petitioner the right to engage a realtor and market the property for sale. Once an offer is received that the Petitioner wishes to accept, a final application is brought for an Order Approving Sale. A debtor may seek to redeem the mortgage by paying it out in full at any time prior to an Order Approving Sale, despite the expiry of the redemption period. When considering an Order Approving Sale, the court will examine whether the lender has acted in a businesslike manner in marketing the subject property and whether the proposed sale is provident in all of the circumstances.

Current Trends in the Land Market

Foreclosures are no longer isolated events; they are part of a broader trend of financial distress in the land market.

Many landowners are overleveraged on raw sites purchased during the 2021–2022 peak, and refinancing has become increasingly difficult as loan-to-value ratios tighten. According to the Bank of Canada, “about 60% of mortgage holders renewing in 2025 and 2026 are expected to see a payment increase.”

Lenders are moving more swiftly to enforce their rights, while developers continue to face delays in municipal approvals despite calls for change and rising servicing costs.

This mismatch between debt obligations and development timelines is driving a surge in foreclosure and insolvency proceedings, as land has previously been seen as the most valuable asset in BC.

For Buyers: Navigating Opportunity and Risk

Distressed assets can present compelling opportunities, including court-ordered sales, foreclosure auctions, and receiver-managed disposals, which often come at below-market pricing and/or prices that are lower than is required to clear title if the property is over-leveraged.

However, due diligence is critical. Buyers must carefully review municipal files, servicing obligations, and any liens or encumbrances. Note that “cheap land” may come with hidden costs or development barriers.

Financing can also be a hurdle. Traditional lenders may hesitate to fund distressed acquisitions, requiring buyers to rely on cash or private capital. That said, buyers who offer speed and certainty, such as firm offers with short closing timelines, may gain leverage in negotiations with lenders or receivers eager to resolve quickly.

For Sellers: Preserving Value Under Pressure

Owners facing financial stress should engage with lenders early. Open dialogue can sometimes lead to extensions, restructures, or staged sales, which are options that may preserve equity and control.

Joint ventures with capitalized developers can also be a lifeline, allowing projects to move forward rather than being liquidated. Pre-selling portions of land to pay down debt is another strategy that can help avoid foreclosure or insolvency.

Waiting too long, however, risks court intervention through foreclosure or receivership proceedings, where pricing and timing are outside the owner’s control.

For Lenders: Strategic Enforcement

Lenders must balance enforcement with asset preservation. A forced sale in a thin market may crystallize losses, while a structured negotiation or joint venture may yield better long-term outcomes.

Appointing a receiver ensures professional management of the sale process, but it also adds cost and may alienate the borrower. Moreover, foreclosure listings can depress comparable sales in the area, affecting broader portfolio valuations.

For Developers: Adapting to a Shifting Landscape

Developers active in today’s market often target shovel-ready or near-serviced distressed sites where lenders are motivated to sell but fundamentals remain strong. Conservative financial modeling, including realistic absorption rates and cost contingencies, is essential to withstand prolonged cycles.

Partnerships with equity investors or lenders can provide a buffer against insolvency. As more distressed land enters the market, pricing benchmarks may shift downward, creating both acquisition opportunities and valuation risks for existing holdings.

Key Takeaway

Distress in the BC land market is rising, and all parties, including buyers, sellers, lenders, and developers, must adapt. The winners will be those who act early, document clearly, and structure deals creatively to manage the changing landscape.

Written by: Dan Moseley, Partner & Sharon K. Malhi, Articled Student

Originally Published: Varing Magazine

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What Happens to a Deposit When a Purchaser Defaults on a Contract of Purchase and Sale?

A deposit is a common feature in contracts of purchase and sale, particularly in real estate transactions. It serves as a demonstration of the purchaser’s commitment to complete the transaction and provides the seller with a measure of security. But what happens to the deposit if the purchaser fails to fulfill their obligations under the contract?

Purpose of the Deposit

The deposit is typically paid by the purchaser at the time the contract is signed or shortly thereafter. Its primary purpose is to secure the purchaser’s performance and to compensate the seller in the event of a default. The deposit is usually held in trust by a third party, such as a real estate brokerage or lawyer, until the transaction is completed or terminated.

Default by the Purchaser

A purchaser is considered to be in default if they fail to complete the transaction as required by the contract. The most common default is the failure to pay the balance of the purchase price on the closing date. Other defaults may include failing to provide required documentation, breaching warranties, or not satisfying condition precedent.

Forfeiture of the Deposit

When a purchaser defaults, the fate of the deposit depends on the terms of the contract and the applicable law. In most cases, the seller is entitled to retain the deposit as liquidated damages. Courts generally uphold the forfeiture of a reasonable deposit, recognizing it as a genuine pre-estimate of the seller’s damages resulting from the purchaser’s breach.

However, if the deposit is disproportionately large relative to the purchase price, a court may find it to be a penalty and refuse to enforce its forfeiture. The key consideration is whether the deposit amount is reasonable in light of the anticipated loss from a default.

Deposit as Liquidated Damages

The deposit is often characterized as “liquidated damages,” meaning it is intended to represent the damages the seller would suffer if the purchaser fails to complete the transaction. If the seller accepts the deposit as liquidated damages, they may be precluded from pursuing further damages unless the contract expressly allows for additional recovery.

Seller’s Right to Additional Damages

If the seller’s actual losses exceed the amount of the deposit, and the contract does not limit the seller’s remedy to forfeiture of the deposit, the seller may seek additional damages. These damages are typically calculated as the difference between the contract price and the resale price, plus any consequential losses directly attributable to the purchaser’s default.

Return of the Deposit

In some circumstances, the purchaser may be entitled to the return of the deposit. For example, if the contract is terminated due to the seller’s default, or if a condition precedent in the contract is not satisfied through no fault of the purchaser, the deposit is typically returned.

Practical Considerations

The contract should be carefully reviewed to determine the specific terms governing the deposit and the consequences of default.

The deposit is usually held in trust and cannot be released to the seller without the written consent of both parties or a court order.

Disputes over the deposit may require negotiation, mediation, or litigation to resolve.

Conclusion

When a purchaser defaults on a contract of purchase and sale, the deposit is generally forfeited to the seller as liquidated damages, provided the amount is reasonable and the contract so provides. The specific outcome will depend on the terms of the contract and the circumstances of the default. Both parties should ensure they understand their rights and obligations regarding the deposit before entering into a contract of purchase and sale.

If you are currently involved in a dispute pertaining to the return of deposit, you should reach out to me at suppal@mcquarrie.com.

Prepared by,

Sunny Uppal

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There are frequent situations where purchasers and sellers get cold feet and may not want to complete a contract. Time is often of the essence in these agreements, and when an agent for the seller or the buyer fails to properly assign the contract before the completion date, the other party may have grounds to rescind the contract. This can lead to significant legal disputes.

Background:

In the context of real property transactions, it is common practice that parties entering into a contract may be required to provide an assignment of contract in certain circumstances, particularly when there are obligations to transfer property interests. When a contract stipulates that time is of the essence, the timely provision of necessary documents—such as an assignment of contract—becomes critical for the completion of the transaction.

In any scenario, where the party (or the party’s representatives) fail to provide the required assignment of contract prior to the completion date, the opposite party can, as a result, assert that the contract is terminated. The failure to provide the assignment within the prescribed timeframe could be considered a material breach of the contract.

Key Legal Considerations:

A. Time is of the Essence

The contractual terms explicitly provided that “time is of the essence,” meaning that any delay in fulfilling obligations, such as the provision of the assignment of contract, can result in a breach. When time is of the essence, failure to meet deadlines specified in the agreement often gives the non-breaching party the right to terminate the contract or seek other legal remedies. This principle is well-established in case law and acts as a strict condition precedent in performance-based agreements.

In Samra Bros. Roofing & Insulation Ltd. v. Funk,1995 CarswellBC 253 (BCCA) at para. 20, the court made note of the essentiality of time in standard contracts of purchase and sale, and held that

The rule that when time is of the essence of a contract, a breach of a time clause is a breach of a condition of that contract, is subject to at least two exceptions:

(a) it does not apply when the party seeking to enforce the time clause contributed to its breach…; [and]

(b) it does not apply when there has been a change of the completion date after the execution of the contract and that and the other circumstances of the case make it unconscionable for the party seeking to enforce the time condition from doing so.

Court further noted that the more general rule is that a party to a real estate contract who acts in bad faith when performing the contract cannot benefit from having so acted.

B. Privity of Contract

I. Failure to Provide Assignment of Contract:

The contract [of purchase and sale] requires the seller to provide an assignment of contract prior to the completion date. Despite this contractual obligation, where the seller or the buyer fails to deliver the assignment in a timely manner, and as the assignment is a critical component of the overall transaction, this failure constitutes a fundamental breach of the terms of the contract. In cases where a party to the contract fails to perform a fundamental obligation, the other party may terminate the agreement.

Gupta v. Gill, 2024 BCSC 193, is a key case that highlights the issue of privity of contract in real estate transactions. In this case, the court addressed the assignment of a purchase contract to a corporate defendant and ruled that there was no “privity of contract” between the vendor and the assignee. As a result, the court dismissed the claim against the assignee. Since the assignee was not a party to the original contract, the court found it unjust to allow the corporate defendant assignee to be included in the litigation.

In British Columbia, it is well-established that if a party seeks to pursue a claim directly against the assignee—whether a corporation or an individual—and the assignee did not sign the Contract of Purchase and Sale, no privity of contract exists between the party and the assignee. As a result, any claim made against the assignee in such circumstances is likely to be dismissed.

Similarly, in Main Acquisitions Consultants Inc. v. Prior Properties Inc., 2021 BCSC 1449, the court affirmed that the failure of agents to properly assign the contract can impact the enforceability of the agreement. The court emphasized that without a perfected assignment, a party that is not in privity with the original contract cannot claim performance or pursue legal action against the vendor

In the recent case of Bene (Oval) Development Ltd. v. 1148538 B.C. Ltd., 2024 BCSC 2080, the Court addressed the issue of improper assignment of contractual rights and its effect on contract enforceability. The case highlights that when the conduct of the parties, including claims and counterclaims, creates uncertainty due to improper assignment, the courts may void the contract. The court’s analysis of whether the contract was void for uncertainty underscores the significant implications of failing to properly assign interests before the completion date.

II. Oral vs. Written Assignment of Your Contract: What You Need to Know?

In real estate transactions, one critical issue that can arise is the assignment of contract—specifically, whether it can be done orally or must be documented in writing. Can you assign your contract to a third party, such as family members or friends, through an oral agreement (also known as an “equitable assignment”), or does the assignment need to be formalized in writing (a “statutory assignment” under the Law and Equity Act, RSBC 1996 c. 253) with express notice given to the seller?

In British Columbia, the courts have generally been flexible, allowing for oral, written, or even partially oral assignments, but they stress the importance of following the express terms outlined in the contract, especially when it comes to notifying the seller. Understanding these nuances is vital when drafting a Contract for Purchase and Sale to avoid the costly and often unnecessary pitfalls of litigation.

In the case of Rakhra v. Jhutty, 2012 BCSC 882,the court held that the lack of proper notice rendered the assignment unenforceable, which is directly applicable to situations where agents fail to properly assign contracts before completion. The Court stressed on a written notice in this because the Contract itself required that from the parties. Therefore, buyer in this case could not have made an equitable (“oral”) or statutory assignment without a clear written notice to the seller. This case underscores the necessity of express written notice to the vendor for a valid assignment under s. 36(1) of the Law and Equity Act.

However, the court also clarified that if the seller receives notice in writing, their consent is not necessary for the assignment to be valid. In such cases, providing timely written notice before the completion date would eliminate the need for seller approval.

You can also give a notice of waiver to do away with the requirement of a written notice to the Seller. For a waiver to be effective, the waiving party must have both full knowledge of its rights and an unequivocal and conscious intention to abandon those rights: Dunn v. Vicars, 2009 BCCA 477 (B.C. C.A.) at para. 45.

On the other hand, the Court, in Gauraya v. Kalia, 2019 BCCA 367, gave effect to a verbal/oral assignment by the Buyer even when no notice was given to the Seller. The Court relied on the express terms of the Contract for Purchase and Sale to hold that the assignment of the Buyer right to purchase of the property was ana equitable assignment within common law and thus, valid between the assignor and assignees. The provisions of the Law and Equity Act did not override the expectations of the parties expressed in their agreement. This was due to the following provision in the contract that allowed the buyer to assign the contract without further notice to the seller, demonstrating how careful contract drafting can avoid disputes over assignment:

The Buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the Seller.

Ultimately, whether you’re buying or selling real property, it’s wise to consult a lawyer to ensure your Contract for Purchase and Sale is legally sound and to prevent any future issues related to contract assignment.

Conclusion

In numerous cases, courts have held that a material breach of an agreement (such as the failure to provide a necessary assignment or document) can result in the termination of the contract, especially where time is of the essence. The non-breaching party is typically entitled to treat the contract as void and may seek damages for any losses suffered as a result of the breach.

If you’re navigating a real estate transaction and facing issues around the assignment of contract, it’s essential to understand your rights and remedies. Failure to meet time-sensitive obligations can have significant consequences for both parties involved, and legal precedents support the notion that a breach of assignment requirements can lead to contract termination.

Ensuring your contract is airtight is key to avoiding unnecessary headaches. Seeking professional legal advice can help you navigate potential pitfalls and secure a smooth transaction.

If you need help navigating the process or have other legal questions, our team is here to assist you on your case. Reach out today for professional legal advice tailored to your situation.

📞 Contact us today at 604.581.7001 to schedule a consultation.

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Disclaimer: This blog post is intended for informational purposes only and does not constitute legal advice. While we strive to provide accurate and up-to-date information, every legal situation is unique. For personalized legal advice tailored to your specific case, please consult with a qualified lawyer. We are happy to assist you with your legal needs, but this post should not be relied upon as a substitute for professional legal counsel.

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We are proud to share that Sarando Matheos has been recognized for ‘Insurance Law for the third year in a row. Parveen Karsan has been recognized for ‘Tax Law’ and ‘Trust and Estates’ for the second year in a row.

We would like to congratulate Chris Bettencourt (Real Estate Law), Dan Moseley (Corporate and Commercial Litigation), Greg Van Popta (Real Estate Law), and Mandeep Kular (Real Estate Law) for being newly recognized this year.

Mandeep Kular has been included in the Canadian inaugural edition of Best Lawyers: Ones to Watch, which recognizes associates and other lawyers who are earlier in their careers for their outstanding professional excellence.

About Best Lawyers:

Best Lawyers is a respected peer-review legal publication, published annually since 1983. The publication receives over 13 million submission from around the world, evaluating the legal abilities of lawyers based on their practice areas. Their lists of outstanding lawyers are compiled through a process of conducting extensive surveys in which tens of thousands of leading lawyers confidentially evaluate their professional peers within the same geographic region and practice area.

Congratulations to this year’s recipients!

Individual lawyer biographies may be viewed by clicking on the names below:

Corporate and Commercial Litigation

• Dan Moseley, Partner (Managing Partner)

Insurance Law

• Sarando Matheos, Partner

Real Estate Law

• Chris Bettencourt, Partner
• Greg Van Popta, Partner
• Mandeep Kular, Partner (Best Lawyers: Ones to Watch)

Tax Law

• Parveen Karsan, Partner

Trusts & Estates

• Parveen Karsan, Partner

The post 6 McQuarrie Lawyers Recognized in the 2025 Edition of the Best Lawyers in Canada Directory appeared first on McQuarrie Legal Services.

Originally published: August 2, 2023
Updated on January 18, 2024

A. Introduction

The federal government has expanded the mandatory disclosure rules in the Income Tax Act (“ITA”) by making changes to the reportable transaction rules and introducing a new notifiable transaction regime, as outlined in this Memorandum. Notifiable transactions differ from reportable transactions in that notifiable transactions are those that the Minister of National Revenue specifically designates as requiring reporting, whereas reportable transactions require reporting if certain specified criteria are met.

The primary objective of these amendments is to promote transparency and compliance in tax-related matters. To achieve this goal, the amendments impose specific obligations on taxpayers, advisors, and promoters to provide comprehensive information returns regarding reportable and notifiable transactions to the Canada Revenue Agency (CRA).

The proposed changes have undergone significant legislative progress, with draft legislation being presented on February 4, 2022, and further developments occurring since August 9, 2022. The bill, known as Bill C-47, received Royal Assent on June 22, 2023, transforming the rules in their current form into law.

B. Reportable Transaction Rules

A “reportable transaction” refers to an avoidance transaction that is entered into by or for the benefit of a person. This includes not only the specific avoidance transaction but also any transaction that is part of a series of transactions (referred hereto as “transaction or series”) that consists of the avoidance transaction.

The mandatory disclosure rules in respect of reportable transactions apply when two criteria are satisfied:

a) A transaction or series has at least one of three generic hallmarks, which will be explained in further detail later in the memorandum; and

b) It can reasonably be concluded that one of the main purposes of entering into the transaction or series of transactions is to obtain a tax benefit.

Before the introduction of changes to the reportable transaction rules, taxpayers were obligated to report transactions that meet the criteria of an “avoidance transaction” as defined in section 245 of the General Anti-Avoidance Rule (GAAR).¹ Under this definition, a transaction or series would not be deemed an avoidance transaction if it could be reasonably demonstrated that it was primarily undertaken or arranged for bona fide purposes other than obtaining the tax benefit.

According to the new regime, an “avoidance transaction” is defined as a transaction that may reasonably be considered to have as one of its main purposes, or one of the main purposes of a series of transactions of which it is a part, to obtain a tax benefit. This definition establishes a lower threshold compared to the former definition modelled in the GAAR. This lower threshold implies that a transaction could be classified as an avoidance transaction even if it has additional legitimate purposes or motivations. Therefore, under the new reportable transaction rules, it is important to note that there is no requirement for a transaction to be abusive.

When discussing the avoidance transaction definition, the Department of Finance made the following statement in the explanatory notes to the April 2023 Notice of Ways and Means Motion (the “Explanatory Notes”):

“Normal commercial transactions that do not pose an increased risk of abuse, in and of themselves, are not intended to result in a reporting obligation under these rules.”²

That said, the language of the definition of “avoidance transaction” may catch normal commercial transactions. Whether such transactions pose an increased risk of abuse may be a matter of some controversy.

1. The Three Hallmarks

As discussed, one of the criteria for determining whether a transaction or series is reportable is the presence of at least one of three generic hallmarks. Conversely, if none of the three generic hallmarks, as defined below, are present in a transaction or series, there is no legislative requirement to report it, even if it can be reasonably concluded that one of the main purposes of entering into the transaction or series is to obtain a tax benefit. According to the CRA Guidance released on July 5, 2023 (the “CRA Guidance”), transactions such as estate freezes, debt restructuring, loss consolidation arrangements, shareholder loan repayments, purification transactions, claiming of the capital gain exemption, divisive reorganizations and foreign exchange swaps may not trigger a reporting requirement, though they are typically driven by a desire to obtain tax benefit. This list is not exhaustive.³

a. The Contingent Fee Arrangements Hallmark

The first hallmark pertains to the circumstances where an advisor or promoter is entitled to receive a fee based on the presence of a tax benefit. This hallmark encompasses the following situations:

a) computation of fee is based (to any extent) on the amount of a tax benefit that could result;

b) entitlement to fee contingent upon the obtaining of, or failure to obtain, a tax benefit; or

c) the fee is attributable to the number of persons who

i) enter into the avoidance transaction or

ii) have been provided access to advice or opinion given by the advisor or promoter regarding tax consequences.

Exclusions⁴

According to the CRA Guidance and the Explanatory Notes, the following activities do not trigger the contingent fee hallmark and as a result, are not reportable to the extent the transaction is limited to the circumstances below and no other specific hallmark is met:

a) A fee for the claiming of the scientific research and experimental development (SR&ED) tax credits;

b) A fee for the preparation of an annual income tax return that results in a taxpayer obtaining a refund of tax, including entitlement to personal tax credits, such as the disability tax credit or refundable tax credits, the Canada child benefit, the GST/HST credit or the Canada workers benefit;

c) Fees based on the numbers of preparations of and filings of income tax elections in respect of a transaction or series of transactions. This also extends to the fees for the preparation of the documents effecting those elections when the person in charge of preparing the documents is different than the person filing the elections;

• As an example, a commercial reorganization may require the filing of multiple T2057s pursuant to section 85 of the ITA for the purpose of deferring capital gains. A firm may bill for the preparation of the T2057s on a per-transferor basis given the work to be done for each taxpayer will be similar. For greater certainty, the fees are only contingent on the number of returns prepared and not the attainment of the tax benefit.

d) In certain circumstances, a firm may bill a fee attributable to the number of taxpayers that participate in or have been provided access to the advice given on the tax consequences of the transaction. It is important to note that the fees must only be contingent on the number of returns or elections prepared, rather than the attainment of a tax benefit. A few examples are outlined below:

• A section 85.1 rollover (excluding subsection 85.1(3) for foreign affiliates) for the tax-deferred exchange of shares between public corporations to the extent that it is not part of a broader series. This may be in the context of takeover bids, share exchanges based on plans of arrangement, and other acquisitions where shares of a target corporation are exchanged for shares of the acquiring corporation.

• A section 85 rollover in the context of a share-for-share exchange to defer a gain in a large commercial reorganization to the extent that it is not part of a broader series.

• Wind-ups as outlined in subsection 88(1) and amalgamations described in subsection 87(1) that result in tax benefits, where the shareholders’ shares or properties of subsidiary or predecessor corporations are rolled over on a tax-deferred basis during wind-up processes or amalgamations.

e) Value-billing arrangements by professionals such as lawyers and accountants, where a fee is agreed to at the time of billing and is based on criteria other than the value of the tax benefit resulting from the transaction or series, which might include:

• the level of training and experience of the persons engaged in the work;

• the time expended by the persons engaged in the work;

• the degree of risk and responsibility that the work entails;

• the priority and importance of the work to the client; and

• the value of the work to the client;

f) Contingent tax litigation fee arrangement in relation to an appeal of a tax assessment by a lawyer in respect of a tax benefit from a completed transaction or series.⁵ Therefore, the litigator would not generally be an advisor in respect of a transaction or series solely because of the existence of the contingent litigation fee arrangement that is implemented after the completion of the transaction or series that is the subject of an appeal. This position would also generally extend to the professional assistance provided to a taxpayer in relation to an audit as well as the issuance of assessments (including proposed reassessments); and

g) Billing practices and circumstances of an advisor in respect of an avoidance transaction involving the collection of a standard fee (generally available to the public under normal commercial terms and in comparable circumstances) by a financial institution:

• for the establishment and ongoing administration of a financial account, such as a registered retirement savings plan (RRSP), or a financial instrument, such as a related segregated fund investment, including where the fee is determined in relation to the amount of the investment;

• where the fee offered to a particular client is discounted in relation to the number of financial accounts maintained by the financial institution for the particular client;

• for the establishment of a bank account for a trust;

• for a loan to allow for the subscription of shares by a family trust as part of an estate freeze, the annual fee earned by the Trustee(s) or fees for the establishment of a bank account for such a trust;

• for the repayment of a shareholder loan where a taxpayer is indebted to a Canadian-controlled private corporation, borrows sufficient funds from a Canadian Bank and the latter charges lending fees and interest;

• as a normal per-transaction charge for each security trade in the context of a year-end tax-loss selling program operated by the financial institution.

On this basis, no reporting obligation would generally arise for a financial institution that collects a standard fee in relation to the provision of an ordinary financial account that is broadly offered in a normal commercial or investment context in which parties deal with each other at arm’s length and act prudently, knowledgeably and willingly.

It should be noted that exclusion may not apply where the financial institution can reasonably be expected to know that the financial account will be used in a reportable transaction to their client.⁶

b. The Confidential Protection Hallmark

This applies when an advisor or promoter obtains “confidential protection” regarding an avoidance transaction. “Confidential protection” means anything that prohibits the disclosure to any person or to the Minister of National Revenue (“MNR”) of the details or structure of the transaction.

It is important to note that confidential protection does not include provisions that solely disclaim or restrict an advisor’s liability if the disclosure of transaction details or structure is not prohibited. Furthermore, the requirement for confidential protection to be applicable must relate to the tax treatment of the avoidance transaction.

It may be advisable for lawyers to consider including “notwithstanding language” in their engagement or retainer letters to clarify that any confidentiality clauses contained within their documents should not be interpreted as providing confidential protection under the reportable transaction rules. This issue is elaborated on in detail in the “Recommendations” section of this Memorandum.

Exclusion

In the absence of any other specific hallmark, the CRA Guidance clarifies that the protection of trade secrets unrelated to tax matters does not trigger a reporting obligation. Moreover, standard confidentiality agreements that do not require tax advice to be confidential, such as a letter of intent that includes a confidentiality requirement, do not give rise to a reporting requirement. Similarly, the CRA Guidance stipulates that standard commercial confidentiality provisions in standard client agreements or documentation, which do not contemplate a specific identified tax benefit or tax treatment, do not, in and of themselves, impose a reporting obligation.

c. The Contractual Protection Hallmark

The third hallmark applies when a taxpayer or certain other individuals, including promoters or advisers, receive contractual protection if the transaction in question fails to achieve the intended tax benefit. It pertains to transactions that involve insurance or other forms of protection, including an indemnity, compensation or guarantee that:

a) protects against a failure of the transaction or series to achieve any tax benefit; or
b) pays for or reimburses expenses, fees, taxes, interests, penalties, or any other costs that may arise during a dispute related to a tax benefit.

Exclusions

According to the CRA Guidance and the Explanatory Notes, in the absence of any other specific hallmark, the below-listed matters would not give rise to a reporting requirement:

a) A limitation of liability clause in a professional engagement letter, provided that the purpose of the limitation clause is to generally limit the accountant’s liability for negligence (i.e., it is related to professional indemnity insurance).

b) Standard professional liability insurance of a tax practitioner.

c) Standard representations, warranties and guarantees between a vendor and purchaser, as well as traditional representations and warranties insurance policies, that are generally obtained in the ordinary commercial context of mergers and acquisitions transactions to protect a purchaser from pre-sale liabilities (including tax liabilities).⁷ It is important to note that the Explanatory Notes do not explicitly mention other types of commercial transactions. Therefore, this hallmark may still be applicable where agreements drafted in respect of other commercial transactions, contain tax indemnities and the like.

d) Standard commercial indemnities provisions in standard client agreements or documentation, which do not contemplate a specific identified tax benefit or tax treatment.

e) Tax return insurance – It is our general view that tax return insurance would not constitute contractual protection insofar as the insurance is extended to a taxpayer’s filings generally, and does not contemplate any particular transaction or series entered into by a taxpayer and those who engage in aggressive tax planning would continue to bear potentially significant financial risks associated with such activities. The insurance would not pay for or reimburse taxpayers for tax imposed as a result of disputed tax positions in respect of aggressive tax planning, and it is subject to maximum amount of coverage (or protection) which would not likely cover a material portion of the total expenses incurred by a taxpayer as a result of an audit in respect of aggressive tax planning.

f) Re-insurance – For greater certainty, where the original insurance policy is not subject to a reporting obligation, the reinsurance of the risk generally should not cause further reporting.

g) A reporting obligation would not arise solely in respect of contractual protection in the form of insurance that is integral to an agreement between persons acting at arm’s length for the sale of a business⁸ where it is reasonable to conclude that the insurance protection is intended to ensure that the purchase price paid under the agreement takes into account any liabilities of the business immediately prior to the sale and the insurance is obtained primarily for purposes other than to obtain a tax benefit from the transaction or series.

• Indemnities related to existing pre-closing tax issues, or the amount of existing tax attributes (tax pools, capital cost allowance, etc.).

• An acquisition by a public company where the acquisition transaction is specifically and carefully structured by the public acquiror (the Purchaser) and its tax advisors to achieve a paragraph 88(1)(d) bump of non-depreciable capital property owned by the target company (the Target) and the Purchaser obtains specific contractual covenants and/or indemnities from the Target and the significant shareholders of the Target (whether under the acquisition agreement or under separate support agreements) that are intended to ensure the Target and/or the significant shareholders do not take certain steps that may cause the bump denial rules to apply and, in the event the covenants are breached, that the Purchaser is indemnified for the additional taxes payable as a result of the loss of the paragraph 88(1)(d) bump. Contractual protection obtained in respect of indemnifications provided by the Purchaser would generally not be considered to trigger the contractual protection hallmark. This could also apply in a private corporation context.

• A purchase of taxable Canadian property from a non-resident of Canada, who could be liable for 25% (or in some cases 50%) of the purchase price for the property pursuant to subsection 116(5) of ITA in the absence of a certificate of compliance issued by the CRA under subsection 116(2) or subsection 116(4) in respect of the disposition. Tax insurance may allow the parties to complete the transaction and go their separate ways without concern for lingering tax liabilities. Tax insurance or other contractual protection obtained in such circumstances would generally not be considered to trigger the contractual protection hallmark.

• A pre-sale transaction where intercorporate dividends are paid to a holding company to extract safe income from the target company. Contractual protection obtained in respect of the calculation of safe income would generally not be considered to trigger the contractual protection hallmark.

• Indemnities or covenants to a purchaser and/or target in respect of Part III tax liabilities and other adverse tax consequences arising from dividends paid as part of a pre-closing reorganization.

It should be noted that this exception does not extend to other forms of insurance or protections that may be obtained to cover specific identified tax risks (other than the risks specifically discussed above), such as tax liability insurance policies used in avoidance transactions. The existence of such insurance may often be an indication of aggressive tax planning.

h) Standard price adjustment clauses, as discussed in the Income Tax Folio S4-F3-C1.⁹

i) Other price adjustment clauses that are not tax-driven (such as a working capital adjustment clause in a Purchase and Sale Agreement).

j) Obtaining an advance income tax ruling from the CRA or other tax administrations on non-Canadian tax issues, by a person seeking a tax benefit from an avoidance transaction or series of transactions involving an avoidance transaction.

k) Contingent litigation fee arrangement in relation to an appeal of a tax assessment by a lawyer in respect of a tax benefit from a completed transaction or series. This position would also generally extend to the professional assistance provided to a taxpayer in relation to an audit as well as the issuance of assessments (including proposed reassessments).

l) Withholding tax – Standard contractual representations and indemnities with respect to the failure to deduct or withhold an amount under section 215, in an arm’s length situation.

m) Partnership investment – For greater certainty, a partnership agreement containing a standard clause to the effect that, in the event of an audit of a partner, the partnership will provide reasonable assistance to that partner to help them resolve such an audit generally would not be considered to meet the contractual protection hallmark. However, the contractual protection hallmark would be met if the purpose of the clause contemplates any particular avoidance transaction or series (including an avoidance transaction).

n) Mutual fund merger (where an investment fund manager merges two investment funds within a fund family) – The merger is structured to be tax-deferred pursuant to section 132.2 of ITA such that the surviving fund acquires the assets of the terminating fund. If under the terms of the merger agreement, the fund manager agrees to indemnify the trustee of the terminating fund for any liabilities that might arise in respect of the terminating fund (commercial disputes, securities law claims, etc.) such indemnity would not constitute contractual protection. 

o) The contractual protection hallmark will not apply in a normal commercial or investment context in which parties deal with each other at arm’s length and act prudently, knowledgeably and willingly, and does not extend contractual protection for a tax treatment in respect of an avoidance transaction. Without providing an exhaustive list of examples, these can include:

• Tax indemnities in standard provisions such as gross-up clauses in loan agreements or International Swap and Derivative Agreements.

• Tax indemnities in employment agreements and severance agreements.

• In the course of the establishment of a self-directed RRSP with a Canadian Bank, the RRSP plan document includes a Tax Indemnity, where the client agrees to indemnify the Trustee (the subsidiary of the Canadian Bank which agrees to act as the plan trustee) if the RRSP plan faces tax consequences, such as holding a non-qualified investment. Despite the RRSP being potentially considered an avoidance transaction, the Tax Indemnity is not regarded as contractual protection since it aligns with standard market practices and applies in a regular commercial or investment context.

2. Tax Shelters and Flow-Through Shares

Disclosure under the reportable transaction regime is not required for the acquisition of a tax shelter or the issuance of a flow-through share where the appropriate information return has been filed. Please consult with your tax advisor.

3. Who Should File?

According to the reportable transaction rules, several parties have an obligation to file information returns with the appropriate authorities. These include:

a) Every person for whom a tax benefit results or is expected to result from the reportable transaction or series;

b) Advisors and promoters who are entitled to a fee in respect of the reportable transaction or series; and

c) Every person who is not dealing at arm’s length with the advisors or promoters, and is entitled to a fee in respect of the transaction or series.

It is important to note that clerical or secretarial services are excluded from the filing obligation. Additionally, it is worth emphasizing that each obligated person is responsible for fulfilling their individual reporting obligations.

For a partnership or employer who receives a fee as an advisor or promoter in respect of an avoidance transaction and discloses a reportable transaction as required, its partners or employees including in-house tax advisors would generally not also need to make a disclosure. The foregoing also applies to an individual who provides services as an employee of a professional corporation that is a partner of the relevant partnership, directors of a corporation and former employees or former partners.

4. What Is an Advisor?

In the context of reportable transactions, an advisor refers to any person who provides, directly or indirectly, in any manner whatever:

• any contractual protection in respect of the transaction or series, or
• any assistance or advice with respect to creating, developing, planning, organizing or implementing the transaction or series

to another person (including any person who enters into the transaction for the benefit of another person).

5. What is a Promoter?

A promoter, in respect of a transaction or series, means each person who

a) promotes or sells (whether as principal or agent and whether directly or indirectly) an arrangement, plan or scheme (referred to as an “arrangement”), if it may reasonably be considered that the arrangement includes or relates to the transaction or series;

b) makes a statement or representation (whether as principal or agent and whether directly or indirectly) that a tax benefit could result from an arrangement, if it may reasonably be considered that
ii) the statement or representation was made in furtherance of the promoting or selling of the arrangement, and
iii) the arrangement includes or relates to the transaction or series; or

c) accepts (whether as principal or agent and whether directly or indirectly) consideration in respect of an arrangement referred to in paragraph (a) or (b) above.

6. When To File?

Taxpayers, advisors, and promoters must file information about reportable transactions within 90 days of the earlier of:

a) the date on which the person becomes contractually obligated to enter into the transaction; and

b) the date on which the person actually enters into the transaction.

The revised rules governing reportable transactions are applicable to transactions or series that occur after royal assent, which took place on June 22, 2023. This means that if an individual enters into a contract for a reportable transaction on June 1, 2023, but the actual transaction occurs on June 30, they are still obligated to report it, and the 90-day reporting period will begin on June 30, 2023. Similarly, if a person is involved in a series of transactions that span the date of royal assent, the reporting requirement will be triggered by the first reportable transaction entered into after the date of royal assent.¹⁰

7. How To File?

Reportable transactions are required to be disclosed to the CRA in the prescribed form, RC312 Reportable Transaction and Notifiable Transaction Information Return.

C. Notifiable Transaction Rules

Under the new regime, there is an obligation to report transactions or series that are designated as “notifiable” transactions as well as transactions that are “substantially similar” to notifiable transactions. The term “substantially similar” is defined as encompassing transactions or series that are expected to result in “the same or similar types of tax consequences” and are “either factually similar or based on the same or similar tax strategy”. The legislation expressly states that “substantially similar” should be “interpreted broadly in favour of disclosure”.¹¹

1. Designated Transactions

Effective November 1, 2023, the Minister of National Revenue with the Concurrence of the Minister of Finance, designated the following transactions and series of transactions as notifiable transactions. The descriptions and examples provided are directly quoted from the CRA’s publication:¹²

1) Straddle loss creation transactions using a partnership

The following series of transactions has been designated as a notifiable transaction:

a. A taxpayer enters into an agreement to acquire a partnership interest from an existing partner.

b. The partnership trades foreign exchange forward purchase and sale agreements on margin through a foreign exchange trading account. The foreign exchange forward agreements are essentially straddle transactions where it is reasonable to conclude that each agreement is held in connection with the other and where, in the aggregate, the individual agreements (legs) will generate substantially equal and offsetting gains and losses. 

c. Shortly before the taxpayer’s acquisition of the interest in the partnership, the partnership disposes of the gain leg(s) of the foreign exchange forward agreement(s). 

d. The income from the gain leg(s) is then reflected in the income of the partnership and is allocated to the original partner immediately prior to the acquisition of the interest in the partnership by the taxpayer.

e. Following the acquisition of the partnership interest by the taxpayer, the loss leg(s) are realized and a business loss is allocated to the taxpayer.

2) Avoidance of deemed disposal of trust property

The following transactions and series of transactions have been designated as notifiable transactions:

a. Indirect transfer of trust property to another trust

A Canadian resident trust (“New Trust”) holds shares of a corporation resident in Canada (“Holdco”) that is or will become a beneficiary of another Canadian resident trust (“Old Trust”) that holds property that is capital property or land included in the inventory of a business of Old Trust. At any time prior to its 21-year anniversary, Old Trust transfers the property to Holdco on a tax deferred basis pursuant to subsection 107(2).

In the result, the 21-year rule will not apply to Old Trust, and a new 21-year period will start to run with respect to New Trust, providing for a much longer period of deferral. New Trust’s assets will reflect the property formerly held by Old Trust but may have a higher tax basis than such property.

b. Indirect transfer of trust property to a non-resident

One or more of the non-resident beneficiaries of a Canadian resident trust hold shares of a corporation resident in Canada (“Holdco”) that is or will become a beneficiary of the trust. At any time prior to its 21-year anniversary, the trust transfers property (other than property described in any of subparagraphs 128.1(4)(b)(i) to (iii)) to Holdco on a tax deferred basis pursuant to subsection 107(2).

In the result, the 21-year rule will not apply to the trust, with the transfer of the trust’s property to Holdco providing for a much longer period of deferral. The non-resident beneficiaries of the trust hold shares of Holdco that reflect their former indirect interest in the property of the trust, possibly providing an opportunity to have such property transferred by Holdco to the non-resident beneficiaries at some future time without triggering the application of subsections 107(2.1) and 107(5). 

c. Transfer of trust value using a dividend

A Canadian resident trust (“New Trust”) holds shares of a corporation (“Holdco”) that is or will become a beneficiary of another Canadian resident trust (“Old Trust”) that holds property that is shares in a Canadian corporation (“Opco”).  At any time prior to Old Trust’s 21-year anniversary, Opco redeems shares held by Old Trust and issues a promissory note or gives cash as consideration. In so doing, Opco is deemed pursuant to subsection 84(3) to have paid, and Old Trust is deemed to have received, a dividend equal to the amount by which the amount paid by Opco on the redemption exceeds the PUC in respect of the shares. The deemed dividend is designated by Old Trust and deemed to be received by Holdco pursuant to subsection 104(19). The dividend is deductible in the hands of Holdco pursuant to subsection 112(1). The cash or the promissory note is paid or made payable in the year by Old Trust to Holdco as payment for the dividend allocated to it.

In the result, the 21-year rule will not apply to Old Trust, and a new 21-year period will start to run for New Trust, providing for a much longer period of deferral. New Trust’s assets will reflect the value of the property formerly held by Old Trust but will undoubtedly have a significantly higher tax basis than such property.

3) Manipulation of bankrupt status to reduce a forgiven amount in respect of a commercial obligation

The following series of transactions has been designated as a notifiable transaction:

a. A person or partnership (“Debtor”) is assigned into bankruptcy.

b. While Debtor is a bankrupt, a commercial obligation of the Debtor is settled, deemed to be settled or extinguished for an amount that is less than the principal amount of the obligation.

c. At any point in time, Debtor files a proposal under Part III of the Bankruptcy and Insolvency Act and the bankruptcy is annulled either upon the approval of the proposal by a court or on the date stated in a court order.

4) Reliance on purpose tests in section 256.1 to avoid a deemed acquisition of control

The following transactions and series of transactions have been designated as notifiable transactions:

a. Purpose test in paragraph 256.1(2)(d)

Lossco is a taxable Canadian corporation that has tax attributes that are subject to the application of one of the provisions listed in the definition of “attribute trading restriction” in subsection 256.1(1). Another person (“Aco”) does not, immediately before the particular time, hold shares of Lossco with a FMV that satisfies the 75% FMV threshold test. At a particular time, Aco acquires shares of Lossco and, following the acquisition, Aco does not control Lossco but satisfies the 75% FMV threshold test. The taxpayer takes the position that because the purpose test in paragraph 256.1(2)(d) is not satisfied, subsection 256.1(3) does not apply.

b. Purpose test in paragraph 256.1(4)(a)

Lossco is a taxable Canadian corporation that has tax attributes that are subject to the application of one of the provisions listed in the definition of “attribute trading restriction” in subsection 256.1(1). A corporation (“Profitco”) and another person (“Aco”) not dealing at arm’s length with Profitco acquire shares of Lossco. Following the acquisition of the Lossco shares, Profitco does not control Lossco and does not hold shares of Lossco with a FMV that satisfies the 75% FMV threshold test. However, Profitco would satisfy the 75% FMV threshold test if the acquisition of the Lossco shares by Aco is ignored. The taxpayer takes the position that subsection 256.1(3) does not apply solely because the purpose test in paragraph 256.1(4)(a) is not satisfied.

c. Purpose test in paragraph 256.1(6)

Lossco is a taxable Canadian corporation that has tax attributes that are subject to the application of one of the provisions listed in the definition of “attribute trading restriction” in subsection 256.1(1). Lossco acquires control of a particular corporation (“Profitco”) and it can reasonably be concluded that one of the reasons for the acquisition is so that a specified provision as defined in subsection 256.1(1) does not apply. However, the taxpayers take the position that subsection 256.1(6) does not apply solely because its purpose test is not satisfied.

5) Back-to-back arrangements

The following transactions and series of transactions have been designated as notifiable transactions:

a. Thin capitalization

Non-resident 1 (NR1) is a relevant non-resident in respect of a taxpayer. NR1 enters into an arrangement with an arm’s length non-resident (NR2) to indirectly provide financing to the taxpayer. The taxpayer files, or anticipates filing, its income tax returns on the basis that the debt or other obligation owing by it, and the interest paid thereon, is not subject to the thin capitalization rules.

b. Part XIII tax

A non-resident person (NR1) enters into an arrangement to indirectly provide financing to a taxpayer through another non-resident person (NR2). If interest had been paid by the taxpayer directly to NR1, it would be subject to Part XIII tax. The taxpayer’s income tax reporting reflects, or is expected to reflect, the assumption that the interest it pays in respect of the arrangement is either not subject to withholding tax at all or is subject to a lower rate of withholding tax than the rate that would apply on interest paid directly by it to NR1.

Alternatively, similar arrangements are entered into in respect of rents, royalties or other payments of a similar nature, or to effect a substitution of the character of the payments.

2. Who Should File?

Similar to the new reportable rules, the following parties have the obligation to file information returns:

a) Every person for whom a tax benefit results, or for whom a tax benefit is expected to result based on the person’s tax treatment of the notifiable transaction, from the notifiable transaction or series;

b) Every person who enters into a notifiable transaction for the benefit of a person described in (a);

c) Every advisor or promoter in respect of the notifiable transaction; and

d) Every person not dealing at arm’s length with an advisor or promoter in respect of the notifiable transaction and who is or was entitled to a fee in respect of the notifiable transaction.

As with the reportable transaction rules, there is no filing requirement if a person provides clerical or secretarial services only.

3. What Is an Advisor?

Under the notifiable transaction rules, the definition of an advisor includes any person who provides any assistance or advice with respect to creating, developing, planning, organizing or implementing the notifiable transaction to another person. Additionally, anyone who provides assistance or advice to any promoter or any other advisor in respect of the transaction is an advisor.

The definition of promotor with respect to the notifiable transaction rules is the same as the definition of promoter for the reportable transactions rules.

It is important to highlight that, unlike the reportable transaction rules, an advisor or promoter does not necessarily need to be entitled to a fee to be caught by the notifiable transaction rules. There can be more than one advisor in respect of a notifiable transaction or series, each of whom may be subject to a filing obligation. However, a person that provides advice or representation in respect of an audit or tax dispute is excluded from the definition of an advisor or promoter, unless they are otherwise involved in the notifiable transaction.

4. When To File?

A taxpayer who enters into a notifiable transaction or another person who enters into such a transaction in order to procure a tax benefit for the taxpayer must file information returns within 90 days of the earlier of the date on which the taxpayer (or a person who entered into the transaction for the benefit of the taxpayer) becomes contractually obligated to enter into the notifiable transaction and the day on which the taxpayer (or a person who entered into the transaction for the benefit of the taxpayer) enters into the notifiable transaction.

5. The Information Required for Notifiable Transactions

The prescribed form for disclosing the notifiable to the CRA is RC312 Reportable Transaction and Notifiable Transaction Information Return. The relevant person would indicate on Form 312 that the transaction is a reportable transaction, a notifiable transaction or both. For notifiable transactions, the relevant person has to complete Part 3, “Notifiable transaction” and then continue with Part 5, “Penalty” of the form.¹³

6. Filing Requirements Rule

Under the filing requirements for notifiable transactions, a separate information return is required for each transaction within a series. However, in some cases, a single information return that provides details of every transaction within the series may be sufficient.

Like the reportable transaction regime, each person who is affected by the notifiable transaction is required to file an information return. Employees and partners are deemed to have met their reporting requirement when the employer or partnership has filed the required information return. The foregoing also applies to an individual who provides services as an employee of a professional corporation that is a partner of the relevant partnership, directors of a corporation and former employees or former partners.

7. Due Diligence Defence

A person who obtains or expects to obtain a tax benefit from a notifiable transaction and for taxpayers entering into such transactions for their own benefit, a defence against penalties imposed for failure to comply with reporting requirements may be available, if they have exercised a degree of care, diligence, and skill in determining whether the transaction qualifies as a notifiable transaction. This exemption recognizes that if a person has taken reasonable measures to assess the nature of the transaction and has acted in a manner that a reasonably prudent person would in comparable circumstances, there is no obligation to file an information return. For example, this defence may be available where the taxpayer seeks the opinion of their advisors regarding potential reporting obligations and is informed by the advisors that there is no requirement to file.

For advisors, promoters, or persons not at arm’s length with advisors or promoters who are entitled to a fee, the due diligence defence may be available where it can be established that the person does not know or should not reasonably be expected to know that the transaction qualifies as a notifiable transaction.

The determination of what a person should “reasonably be expected to know” is assessed objectively, taking into account all the relevant facts and circumstances. It does not rely on the person’s subjective intention or knowledge alone. The question is whether a reasonable person, in the same position and having the same knowledge and information, would be aware that the transaction meets the criteria for being considered a notifiable transaction.

Advisors who provide ancillary services or have narrow mandates may not be expected to know that a transaction is a notifiable transaction, depending on the nature of their involvement and expertise. This applies particularly to members of a team with limited involvement or knowledge of the transaction or series, such as junior employees with specific and focused roles.

D. Penalties

Failure to report or late filing of a reportable or notifiable transaction can result in penalties imposed on taxpayers. The specific penalties are as follows:

b) For taxpayers:
i) $500 per week for each failure to report a reportable or notifiable transaction, up to the greater of $25,000 and 25% of the tax benefit, or
ii) for a corporation with assets having a total carrying value of $50 million or more for its last taxation year that ends prior to the day on which the information return is required to be filed: a penalty of $2,000 per week for each failure to report a reportable or notifiable transaction, up to the greater of $100,000 and 25% of the tax benefit.

c) For advisors, promoters or persons not at arm’s length with advisors or promoters who are entitled to a fee: a total of
i) 100% of the fees charged by that person in respect of the reportable or notifiable transaction,
ii) $10,000, and
iii) $1,000 per day that the person fails to report the reportable or notifiable transaction, up to a maximum of $100,000.

In order to avoid imposing two sets of penalties upon a person who both 1) enters into a reportable or notifiable transaction for the benefit of another person, and 2) is a person who does not deal at arm’s length with an advisor or promoter in respect of the reportable or notifiable transaction and is entitled to a fee, the legislation provides that such a person would be subject only to the greater of these two penalties.

It is unclear whether professional liability insurance would cover the above penalties. We would recommend that affected parties clarify this with their insurance providers.

It should be noted that when required filings for a notifiable transaction are not made, the Minister has the authority to take certain additional measures, which may include denying tax benefits that could result from the notifiable transaction. Moreover, the Minister can reassess a participant in a notifiable transaction outside of the normal reassessment period for a taxation year in respect of the transaction.

E. Solicitor-Client Privilege

According to the CRA Guidance and the relevant provisions, the information is not required to be disclosed if it is reasonable to believe that the information is subject to solicitor-client privilege.¹⁴

F. Recommendations

1. As so many transactions could potentially be in play due to these new rules, it is prudent to review and update the firm’s Engagement Letters, Closing Agenda, Transaction Checklists and Reporting Letters.

2. A step may be added to the Closing Agenda and Transaction Checklists to include a review of the transaction for possible reporting requirements.

3. As the CRA announces designated transactions, taxpayers must promptly respond to meet their reporting obligations. This means identifying any planned and pending transactions that fall under these rules and providing the necessary information within 90 days of entering into these transactions.

4. Advisors participating in creating, planning, or implementing a reportable or notifiable transaction should understand their primary duty to uphold the confidentiality of their clients’ information. If the advisor is required by law to disclose confidential information, the advisor must communicate this to the client in writing, informing them of the potential disclosure to the CRA. The client should be fully informed about the nature of the information that might be disclosed, the circumstances under which it may happen, and the potential risks associated with such disclosure.

Reportable Transaction Flowchart

Notifiable Transaction Flowchart

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[1] Section 245(3): An avoidance transaction means any transaction
(a) that, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit; or
(b) that is part of a series of transactions, which series, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.

[2] M.P. Deputy Prime Minister and Minister of Finance, “Explanatory Notes Relating to the Income Tax Act and Other Legislation”, published by The Honourable Chrystia Freeland, P.C., April 2023, at p 71, available at: https://fin.canada.ca/drleg-apl/2023/nwmm-amvm-0423-eng.html.

[3] Canada Revenue Agency, “Mandatory disclosure rules – Guidance” (Last modified: November 2, 2023), available at: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/mandatory-disclosure-rules-overview/guidance-document.html

[4] Ibid.

[5] Ibid.

[6] Supra Note 2 at p. 76.

[7] Ibid at p. 73.

[8] For greater certainty, this contemplates an indirect sale of all or part of a business which would include:

• A sale of some, but not all, of the shares of a target corporation or interests in a target partnership or trust.

• An indirect sale of a corporation, partnership or trust in a transaction where the purchaser subscribes for new interests in the corporation, partnership or trust and the subscription proceeds are used to redeem the interests of the existing (selling) shareholders, partners or beneficiaries.

• A merger or acquisition effected by the amalgamation of two arm’s length corporations (including in the context of a standard amalgamation squeeze-out transaction).

[9] The CRA has previously characterized the price adjustment clauses as provisions that can potentially prevent adverse tax consequences (in other words, to protect against the failure to achieve a tax benefit).

[10] Supra Note 3.

[11]             Department of Finance, “Legislative proposals relating to the Income Tax Act and the Income Tax Regulations (Budget 2022 and other proposals)” (October 10, 2020), available at: https://fin.canada.ca/drleg-apl/2022/ita-lir-0822-l-2-eng.html.

[12] Canada Revenue Agency, “Notifiable transactions designated by the Minister of National Revenue” (November 01, 2023), available at: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/mandatory-disclosure-rules-overview/notifiable-transactions-designated-by-minister-national-revenue.html

[13] Supra Note 3.

[14] Supra Note 3.

For all your tax-related legal inquiries, contact McQuarrie at 604.581.7001 or by filling out the contact form below.

The post Mandatory Disclosure Rules: The Reportable and Notifiable Transaction Regime appeared first on McQuarrie Legal Services.

The Prohibition on the Purchase of Residential Property by Non-Canadians Act, S.C. 2022, c. 10, s. 235 (the “Act”) and the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, SOR/2022-250 (the “Regulations”) came into force on January 1, 2023, preventing non-Canadians from purchasing residential property in Canada for two years.

On the Minister of Housing and Diversity and Inclusion recommendation, the Regulations Amending the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, SOR/2023-66 (the “Amending Regulations”) were announced. These changes are effective from March 27, 2023.

In this Article, while we give an overview of the Act and its Regulations (collectively referred to as the “Prohibition Legislation”), the focus is on exemptions the Prohibition Legislation has considered for some foreign national individuals whose status in Canada is referred to as “temporary residents” under the Immigration and Refugee Protection Regulations, SOR/2002-227 (the “Immigration Regulations”).

1) Prohibition Legislation and Recent Amendments

The primary provision that forbids “non-Canadians” from acquiring residential properties is Section 4(1) of the Act. This section explicitly states that a non-Canadian is prohibited from directly or indirectly purchasing any residential property.

As we delve into the above-underlined legal terms, we address four significant changes that have been introduced through the Amending Regulations. These changes include expanding eligibility for work permit holders, exempting vacant land from the Prohibition Legislation, introducing exceptions for development purposes, and adjusting control thresholds for corporations.

2) Who are “non-Canadians”?

Under the Prohibition Legislation¹, “non-Canadian” defines as:

a. an individual who is not a Canadian citizen, a permanent resident, or a person registered as an Indian under the Indian Act;
b. a corporation or an entity that is either incorporated outside Canada; or inside Canada, whose shares are not listed on a stock exchange in Canada and is controlled by a person referred to in the above paragraph (a) and by a corporation or an entity outside Canada in the following manners:

• direct or indirect ownership of shares or ownership interests of the corporation or entity representing 10% or more of the value of the equity in it, or carrying 10% or more of its voting rights; or
• control in fact (de facto control) of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.

It is important to highlight that the term “entity” encompasses not only corporations but also other types of business structures. Accordingly, all forms of business entities, including partnerships, sole proprietorships, and trusts, are subject to the Prohibition Legislation.

Prior to the implementation of the Amending Regulations, the criterion for establishing control over a corporation or entity was set at 3%. However, this threshold has now been raised to 10%. Despite this alteration, it remains essential for property lawyers and notaries to thoroughly examine the capital structure as well as the direct or indirect control exerted by corporate or entity purchasers before engaging in any conveyancing.

Exceptions

The Prohibition Legislation includes exceptions for certain non-Canadian nationals. These exceptions are as follows:

a. Temporary residents studying in Canada, if they:

• are enrolled in an authorized study program at a designated learning institution;²
• have filed income tax returns for five years preceding the year of purchase of the property;
• have been physically present in Canada for a minimum of 244 days in each of the past five years, preceding the purchase of the property; and
• purchase a property worth up to $500,000; and
• have not purchased more than one residential property in Canada.³

Holding a study permit and studying in a designated learning institute alone does not qualify international students to buy a residential property in Canada. As discussed above, there are tax filing requirements and a property value cap.

b. Work permit holders, if they:

• have at least 183 days of validity remaining on their work permit or authorization at the time of purchase; and
• have not purchased more than one residential property.⁴

One significant amendment introduced is the expansion of eligibility for work permit holders. Previously, the Prohibition Legislation required work permit holders to work full-time for at least three years in Canada and file income tax returns for three of the four taxation years, preceding the year the purchase is made.

c. Refugees, if they:

• have been given refugee protection or are a protected person under the Immigration and Refugee Protection Act, 2001 (the “Refugee Act”).⁶

d. Refugee claimants and individuals fleeing international crises, if they:

• have claimed for refugee protection, which has been found eligible and referred to the Refugee Protection Division in accordance with the Refugee Act; or
• have received temporary resident status based on humanitarian public policy considerations.⁷

e. Accredited members of foreign missions in Canada, if they:

• hold a passport with a valid diplomatic, consular, official, or special representative acceptance issued by the Chief of Protocol of Canada.⁸

f. Non-Canadian spouses and common-law partners, if they:

• purchase residential property in Canada jointly with their spouse or common-law partner who is a Canadian citizen, Indian Act registered, permanent resident, or non-Canadian partner to whom the prohibition does not apply.⁹

3) What constitutes a “Purchase”?

The act of acquiring a legal or equitable interest or a real right in a residential property, whether with or without conditions, is considered a purchase and falls under the prohibition.¹⁰

However, Section 4(2) of the Regulations outlines several exceptions to this prohibition, which are as follows:

(a) the acquisition by an individual of an interest or a real right resulting from death, divorce, separation or a gift;
(b) the rental of a dwelling unit to a tenant for their occupation;
(c) the transfer of a residential property under the terms of a trust that was established prior to the enactment of the Act;
(d) the transfer that occurs as a result of the exercise of a security interest or secured right by a secured creditor; or
(e) the acquisition by a non-Canadian of residential property for the purposes of development.¹¹

Even though the exception mentioned in paragraph (c) allows for the transfer of a residential property under an existing trust created before January 1, 2023, it is important to note that if a new beneficiary acquires a beneficial interest in a residential property under that trust, it will still be subject to the prohibition, notwithstanding that the trustee remains the registered owner on title.

Moreover, if the non-Canadian becomes liable or assumes liability under an agreement of purchase and sale for a residential property before January 1, 2023, they are not subject to the Prohibition Legislation.¹²

4) What does constitute “Residential Property”?

Section 2 of the Act defines “Residential Property”. According to Section 3(1) of the Regulations, properties located in areas of Canada that are not within a Census Agglomeration (CA) or a Census Metropolitan Area (CMA) are excluded from the Prohibition Legislation.

CA and CMA are defined by the Statistics Canada document entitled “Standard Geographical Classification (SGC) 2021”. Some factors, such as population, are determinative to categorize an area as a CMA or CA. A CMA must have a total population of at least 100,000 or a core population of at least 50,000, and a CA must have a core population of at least 10,000.¹³

It should be noted that the classification of areas as CAs or CMAs can change over time due to factors such as population growth and the integration of municipalities. So, before proceeding with any conveyancing, if there is any uncertainty regarding whether a residential property is excluded from the Prohibition Legislation, the most recent data from Statistics Canada on CAs and CMAs should be consulted.

By virtue of the Amending Regulations, Section 3(2) of the Regulations has been repealed. As a result, vacant lands designated for residential and mixed-use purposes are no longer subject to the previous prohibition. This means that non-Canadians can now purchase and utilize such vacant land for residential development or other purposes.

5) Offence

Any non-Canadian who contravenes the Prohibition Legislation, as well as any person or entity who counsels, induces, aids, abets, or attempts to engage in such actions, resulting in the non-Canadian purchasing residential property directly or indirectly, is deemed guilty of an offence. Upon summary conviction, they are liable to a fine not exceeding $10,000. Moreover, the court can force the sale of the property as a consequence of the violation.

Furthermore, the officers, directors, agents of corporations or entities, or any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity can be held responsible and face the prescribed consequences for their involvement in the violation.¹⁴

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[1] Section 2 of the Act and Sections 1 and 2 of the Regulations.

[2] Designated learning institution has been defined in Section 211.1 of the Immigration Regulations.

[3] Section 5(a) of the Regulations.

[4] Section 5(b) of the Regulations.

[5] A protected person is a person on whom refugee protection is conferred, and whose claim or application has not subsequently been deemed to be rejected.

[6] Section 6(b) of the Regulations.

[7] Section 6(c) of the Regulations.

[8] Section 6(a) of the Regulations.

[9] Section 4(2)(c) of the Act.

[10] Section 4(1) of the Regulations.

[11] In a move to attract investment and foster economic growth, the Amending Regulations introduce an exception that allows non-Canadians to purchase residential property specifically for development purposes.

[12] Section 4(5) of the Act.

[13] Census metropolitan area (CMA) and census agglomeration (CA), Source: https://www12.statcan.gc.ca/census-recensement/2021/ref/dict/az/Definition-eng.cfm?ID=geo009

[14] Sections 6 and 7 of the Act.

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Have a legal inquiry? Contact our Dispute Resolution & Litigation lawyers or Real Estate solicitors

At McQuarrie, our litigation team has a proven track record for ‘getting it right’ through careful preparation, analysis, and strategic execution.

For trusted litigation or real estate advice, contact our Dispute Resolution & Litigation lawyers or Real Estate solicitors by asking for Amy Salak, Paralegal, at 604.580.7066. No matter how complex the issue, McQuarrie is here to help.

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As of January 3, 2023, homebuyers in British Columbia can cancel a contract to purchase a residential property by serving written notice of the rescission on the seller within three business days (the “Rescission Period”) following the signing of the contract under the Home Buyer Rescission Period Regulation (“HBRP Regulation”), B.C. Reg. 175/2022 and the Property Law Amendment Act (“PLA”), S.B.C. 2022, c. 12 (Bill 12), (collectively, the “HBRP Legislation”).    

A hypothetical example can better illustrate the HBRP Legislation.

• A seller offered to sell his residential property to a buyer for $1,500,000 on Monday, March 6, 2023 (the “Offer Date”) in the standard form Contract of Purchase and Sale (“CPS”) of BC Real Estate Association (“BCREA”). The offer was open for acceptance until 12:01 pm on Wednesday, March 8, 2023.
• The buyer accepted the offer at 11.00 am on March 8, 2023 (the “Acceptance Date”).
• The CPS contains a subject removal clause for the sole benefit of the buyer. The CPS is subject to the satisfaction of making a mortgage available to the buyer on or before March 20, 2023.
• The buyer is considering cancelling the CPS as he found a better option in the market. However, the purchase price of the second property is around $1,800,000, and the buyer may not have sufficient funds to complete the purchase of that property. The buyer requested the lending institution increase the mortgage, but the lending institution will inform the buyer about approving the mortgage increase no sooner than March 15.

Rescission Period

The homebuyer’s Rescission Period, also known as the “Cooling-Off Period”, cannot be waived by either the seller or buyer.¹ During the Cooling-Off Period, homebuyers can legally withdraw from the purchase without justification and for any reason.

The Rescission Period is three business days, beginning the next day after the final acceptance of an offer to sell a residential property is signed.² Business days are Monday through Friday and do not include Saturdays, Sundays or holidays. To calculate the Rescission Period, “holidays” are those days defined in Section 29 of the Interpretation Act, [RSBC 1996] CHAPTER 238. This list differs from the “statutory holidays” list commonly used for employment purposes.

In our scenario, the rescission date is Monday, March 13, 2023. It should be noted that the Rescission Period does not begin after subject removal. So even if the CPS contains the subject removal clause until March 20, the buyer is entitled to cancel the CPS until 11:59:59 p.m. on March 13.

Rescission Fee

Suppose a homebuyer wants to exercise their rescission right. In that case, they must pay the seller a rescission fee as a financial penalty equal to 0.25 percent of the purchase price set out in the contract as soon as possible. Where a buyer has made a deposit held in a brokerage trust account, the 0.25% rescission fee must be paid directly to the seller from the deposit, with the remainder of the deposit returned to the buyer.³

If the buyer in our scenario decides to cancel the CPS during the Cooling-Off Period, he must pay $3,750 as a penalty as follows:

($1,500,000 x 0.0025 = $3,750)

Buyer and seller cannot agree to a higher or lower recission fee.⁴ If there are counteroffers back and forth between the buyer and seller that change the price, then the rescission fee is calculated based on the last agreed purchase price.

Rescission Notice

The buyer must serve a rescission notice on the seller by registered mail, fax or email to the seller’s contact details in the CPS. The notice must include the following:

• The address, the parcel identifier (PID) or a description of the property;
• The name, and the signature or electronic signature, of the buyer;
• The name of each seller who is a party to the CPS; and
• The date that the right of rescission is being exercised.⁵

Residential Real Property

HBRP Legislation defines residential real property which includes as follows:

• a detached or semi-detach house;
• a townhouse;
• an apartment in a duplex or other multi-unit dwelling;
• a residential strata lot designed or intended to be used primarily as a residence;
• a manufactured home that is affixed to the land;
• a cooperative interest, which is a right of use or occupation of a dwelling by a corporation or entity.⁶

However, the following types of residential real property are exempt from the right of rescission:

• residential real property that is located on leased land;
• a leasehold interest in residential real property;
• residential real property that is sold at auction, under a court order or under the supervision of a court.⁷

The right of rescission also does not apply to any purchase and sale where Section 21 of the Real Estate Development Marketing Act, [SBC 2004] CHAPTER 41 would apply.⁸ Essentially, if a purchaser of a pre-sale development unit is provided with a disclosure statement, they would not be able to rescind a CPS using the homebuyer’s Cooling-Off Period, as they are offered other rescission rights, which is seven days rescission right from signing the pre-sale contract.

Moreover, float homes and manufactured homes on leased pads used as residences are not subject to the HBRP Legislation.

The Effects of Contract’s Assignment on Rescission Right

In our scenario, since the buyer should wait until March 15 to see if his request to increase the loan amount is approved, he is considering assigning the CPS to his company, believing the rescission period may restart from the date of assignment. Now the question is whether the CPS’s assignment restarts the Rescission Period. The answer is no. If the buyer (the “Assignor”) transfers his rights and benefits under the CPS to his company (the “Assignee”) based on a contract (the “Assignment Contract”), the Assignee does not have a new right of rescission under the Assignment Contract.

Non-Inclusion of HBRP Disclosure Provisions in CPS

As of January 3, 2023, BCREA’s standard CPS forms were updated and now contain the new HBRP disclosure provisions. If contracting parties use the older BCREA’s standard CPS or non-standard CPS, which does not have HBRP disclosure provisions, such an issue does not affect the validity of CPS. In other words, the HBRP disclosure provisions cannot be contracted out, and they apply even if they are not in the CPS.

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¹ Section 7 of the HBRP Regulation.

² Section 42(1) of PLA and Section 4 of the HBRP Regulation.

³ Section 6 of the HBRP Regulation.

⁴ Source: BC Financial Services Authority: https://www.bcfsa.ca/industry-resources/real-estate-professional-resources/knowledge-base/frequently-asked-questions/home-buyer-rescission-period-frequently-asked-questions

⁵ Section 5 of the HBRP Regulation.

⁶ Section 2 of the HBRP Regulation.

⁷ Section 3 of the HBRP Legislation.

⁸ Section 42(2) of PLA.

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Have a legal inquiry? Contact our Dispute Resolution & Litigation lawyers or Real Estate solicitors

At McQuarrie, our litigation team has a proven track record for ‘getting it right’ through careful preparation, analysis, and strategic execution.

For trusted litigation or real estate advice, contact our Dispute Resolution & Litigation lawyers or Real Estate solicitors by asking for Amy Salak, paralegal, at 604.580.7066. No matter how complex the issue, McQuarrie is here to help.

The post “Cooling-Off Period” for Residential Real Estate Sales and Purchases appeared first on McQuarrie Legal Services.

When real estate investors get comfortable or casual or just want to get a great deal done, they sometimes rely on oral “handshake” deals.  Putting promises, understandings or statements/assertions in writing may also be seen as “impolite” or an “unnecessary complication”.  However, putting these different types of communications in writing and making any written record as accurate and clear as possible, can be critical to protecting an investment in a deal if a dispute arises.  It can be the difference between having to hire a real estate litigator or not, between settling a dispute on good terms or not or winning or losing in court.

Generally, A’s oral promise to sell a future subdivided lot to B is not enforceable in law unless that promise is in writing and supported by something B gives A in return.  There are exceptions to that rule, such as where B can show their reliance on A’s promise or that A did something consistent with that promise. 

However, B will almost certainly have to hire a real estate litigator to figure out whether B can prove A’s promise was even made, before having to then prove reliance on it.  Moreover, without putting an oral promise in writing, proof of that promise may not even be admissible in court if a written document intended to be the entire agreement expressly states that there are no other promises outside of that document.

Proving in court that A made the promise can be very easy if the promise is in writing.  A written promise to B is enforceable on its face if it is made in return for something A received or that B gave to someone else (ie…it is a real estate contract). 

Separate from a promise, a mere understanding between two developers may be that A will contribute 20% of the development cost and B will contribute 80%.  That understanding may never amount to a legally enforceable promise by A to B, let alone a contract between them.  Yet it may be very helpful to B to put that understanding in writing if A later says they never intended to pay any development costs.  For example, a dispute may arise if A claims they gave an extra $500,000 towards A & B’s joint purchase of some development land on A’s understanding that B would pay 100% of the development costs. 

In that case, a simple text or email that B had sent to A about B’s understanding of a 20/80 split of the costs could be critical.  That one text sent at the right time and not disputed by A at that time could be very valuable to B.  It could give B the leverage needed to get a favourable settlement with A or help get a win in court if B sues A for 20% of the development costs.  In that scenario, B may assert that they would never have purchased the land with A had there not been an understanding that A would contribute 20%. 

Therefore, although there is no promise or contract B can enforce, B could claim that A would be “unjustly enriched” in law if A gets a certain share of profits without having paid 20% of the development costs.  Based on the text B had sent to A, B might be able to prove that B and A had a “reasonable expectation” that A would share 20%, even though A made no promise to do so and paid an extra $500,000 to purchase the land.

In the case of assertions, these are communications from one person to another that are merely of a factual state of affairs.  There is no promise to do something in the future and there is no understanding without which a deal may not have been made.  If A asserts to B that two parcels A wants to sell to B are approved for subdivision into 15 lots, that is a statement of fact.  The governing municipality has either approved that subdivision or it has not.  Yet as simple as it may be to mention that fact in a text or email, very often someone like B enters into a contract with A to buy those parcels in reliance on A’s assertion, without mentioning that in writing.

If that assertion is not ideally put into a formal contract, even just a Whatsapp message from B to A like “Since you’ve said the city approved it for 15 lots, I’ve decided to buy it”, may be of great value to B.  The value of that message could be the difference between success and failure in court if B sues A for negligent misrepresentation or B seeks to rescind the contract.  Formal contracts are much better than simple texts or emails, but even a contract may not be enough if the promise or assertion is not clearly written.  Without input from a seasoned realtor or real estate solicitor or litigator, what might be intended as an accurate record of the deal does not actually reflect that. 

By putting important communications in writing and in accurate and clear language, one strengthens the utility of promises, understandings or assertions made by someone else with whom you buy or sell dirt.  Otherwise, there is great risk to relying on promises, assertions or understandings not recorded somewhere in writing before consummating a deal.  The foregoing is a very general statement of rules of law and is a simplified way of making a point.  It is no substitute for seasoned, careful and practical legal advice in a given situation.

The post When Buying or Selling Development Land: Importance of Putting It In Writing appeared first on McQuarrie Legal Services.

The BC Supreme Court recently addressed these questions in the case of Derencinovic v. 7 West Homes Ltd., 2021 BCSC 1481.

In Derencinovic, two friends went into business together to purchase plots of land and develop high-end luxury homes for resale. While one friend (Paul) was responsible for the day-to-day operation of the business, the other friend (John) acted as the “banker” and loaned money to the business for each new project.

As the friends embarked on their fourth home project, John had concerns that the money he was investing was being diverted out of the company without his approval. He wanted to ensure that he would be repaid in full for all the money he loaned to the business for each new project. In order to do so, John and Paul signed a mortgage agreement which granted John an interest in the fourth project property to the extent of about $1.3 million.

After the fourth project was completed and the new home was sold, Paul tried to argue that the mortgage was invalid because, among other reasons, no money was advanced at the time the mortgage agreement was signed.

The Court found that advancement of money under the mortgage is not a requirement and that securing prior advances is a proper use of a mortgage agreement. If there is a discrepancy between the amount of money the lender has provided to the borrower and the face amount of the mortgage, then the Court will look to the intentions of the parties and will strive to give effect to those intentions.

“If advances have actually been made, then the inquiry ends and the mortgagee is entitled to the benefits of the mortgage. On the other hand, if all of the monies have not been advanced, then the court is to proceed to the next step and attempt to ascertain the intention of the parties. If the intention was to benefit the mortgagee, even absent actual advances, then effect should be given to that intention.”

In Derencinovic, the Court relied heavily on the mortgage agreement as evidence of the parties’ intention that John was entitled to be repaid $1.3 million. The terms of the agreement were clear and both parties received independent legal advice before signing the mortgage. In the end, the mortgage agreement was found to be valid and John was entitled to recover the sale proceeds of the company’s fourth project in partial satisfaction of the debt owing to him. This case highlights how legal arrangements can be used in creative ways to secure and enforce a person’s or a company’s rights. If you or your company are navigating a complex legal issue or need advice on crafting advantageous legal arrangements, contact our experienced corporate and commercial lawyers for a consultation and find out how we can help.

The post Can a Mortgage Secure Funds that Have Been Previously Advanced to a Borrower? appeared first on McQuarrie Legal Services.

Mortgage insurance is meant to protect you in case you are unable to make your mortgage payments due to an accident, illness, injury, disability or death. These insurance policies are notorious for containing vague language, which can be misleading to a person buying such insurance. Unfortunately, mortgage life insurance claims are frequently denied. Continue reading to learn the most common reasons for mortgage life insurance denial and what to do if your insurance provider denied your claim.

What is mortgage insurance?

First things first, mortgage insurance is an insurance product that is often sold to consumers at the time they take out a mortgage. A bank associate will often offer mortgage life insurance to a consumer during the mortgage application and approval process.

Mortgage insurance is sold on the basis that, if the insured dies, the insurance policy will pay out the outstanding mortgage principal amount, usually up to a certain limit set out in the policy. Consumers typically purchase mortgage insurance to protect a co-borrower or loved one in the event they pass away.

Misrepresentation

When an insured passes away, an application for mortgage insurance coverage can be made. Following an application for coverage, the insurance company will begin the process of determining whether they believe mortgage life insurance coverage is payable. The insurance company will first request copies of the insured’s health records. The insurance company will compare the information contained in the health records with the disclosure provided by the insured as part of the application process.

As part of the application for mortgage insurance, the insured will be required to answer “yes” or “no” to a series of health questions. These health questions are typically convoluted and difficult to understand. If the insurance company finds an insured answered “no” to a health condition that they believe should have been answered “yes”, the insurance company will deny the application for coverage on the basis of a misrepresentation.

The rationale for this denial is that if the insurance company had known about this health condition then they would not have issued coverage in the first place. The insurance company will typically void the policy and return any premiums paid by the insured. This often feels unfair. How could there not be coverage when the insured had been paying premiums for the mortgage life insurance coverage? The fact of the matter is that the denial may have been unfair.

In some cases the insured properly answered “no” to the health questions and coverage should have been paid. In other cases an insured was improperly informed of the consequences to a wrong answer to a health question. Further, if coverage has been in place for two or more years, British Columbia legislation may provide additional protections to you.

We offer free consultations and there are no legal fees payable unless the insurance company pays. If your claim has been denied, we would be pleased to review your matter and provide you with options. Contact us today at 604.581.7001

Conclusion

If you have been denied mortgage life insurance, our lawyers are here to help and offer an initial consultation free of charge. We have resolved thousands of denied insurance claims. Inquire today for your free initial consultation.

Has your Mortgage Insurance Claim been denied? Contact us for a free initial consultation.

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