COURT FILE NO.: CV-13-4245

DATE: 2020 11 18

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Marija Cindric and The Estate of Mile Cindric, Plaintiffs

AND:

Mica Mesic and Marko Mesic, Defendants

BEFORE: Doi J.

COUNSEL: John M. Gray, for the Plaintiffs

Wolfgang Kaufmann, for the Defendants

HEARD: November 12, 2020

ENDORSEMENT

Overview

[1] On this motion, the Plaintiffs seek to enforce a settlement with the Defendants pursuant to Minutes of Settlement executed on October 3, 2018. Under the terms of settlement, the Plaintiffs transferred a property interest to the Defendants on December 7, 2018. To conclude the settlement, the Plaintiffs seek an exchange of mutual releases and a dismissal of this action.

[2] The Defendants submit that the Plaintiffs failed to reasonably discharge their settlement obligations because they did not obtain a clearance certificate under s. 116 of the Income Tax Act, RSC 1985, c.1 (5^th Supp.) (“ITA”). Without a certificate, the Defendants claim that they now face contingent tax liability. As such, the Defendants are refusing to conclude the settlement unless the Plaintiffs obtain a clearance certificate.

[3] In my view, the Defendants did not incur any contingent tax liability because a clearance certificate was not obtained. I also find that the Plaintiffs were not obliged to obtain a certificate under the settlement agreement. Accordingly, I find that the motion should be granted.

Background

[4] The Plaintiffs brought this action for partition and sale of a property in Oakville which they jointly owned with the Defendants since 1986. The Plaintiff Marija Cindric resides in Cleveland, Ohio. The other Plaintiff is the estate of her late husband, Mile Cindric.[^1] The Defendant Mica Mesic is the spouse of the Defendant Marko Mesic, who is Ms. Cindric’s nephew.

[5] On October 3, 2018, the parties executed Minutes of Settlement to resolve this action. The settlement called for the Defendants to buy out the Plaintiffs’ 50% tenant in common interest in the property with a $1 million payment. The parties agreed to apportion the payment as follows:

(a) $798,000.00 for land value; and

(b) $202,000.00 for rental income.

[6] Paragraphs (d), (g) and (i) of the Minutes of Settlement provide:

d. the plaintiffs are non-residents and the plaintiff will obtain tax advice and the parties agree to act reasonably in implementing any such tax advice.

g. the action to be dismissed without costs – following closing.

i. the parties will exchange full and final mutual releases in a form satisfactory to counsel acting reasonably – to be drafted by defendants’ counsel.

[7] The purchase transaction closed on December 7, 2018.

[8] On December 5, 2018, the Defendants served the Plaintiffs with a consent to a draft dismissal order and a draft mutual full and final release. The Plaintiffs executed the consent and release, and delivered the executed documents to the Defendants on December 20, 2018.

[^1]: Mr. Cindric passed away on March 6, 2016. On May 19, 2016, Ms. Cindric obtained an order to continue this action.

[9] As Ms. Cindric is a non-resident of Canada, the Defendants withheld and remitted 25% of the payment to the Canada Revenue Agency (“CRA”) towards her taxes, in the following amounts:

(a) $199,500.00 for property taxes; and

(b) $50,500.00 for rental income taxes.

[10] Taxes are payable by a non-resident on the disposition of taxable Canadian property under

s. 116 (Disposition by non-resident person of certain property) of the ITA, and on Canadian rental income under s. 216 (Alternatives re rent and timber royalties) of the ITA. To this end, Ms. Cindric filed her 2018 income tax return with CRA with respect to the sale of the property and its rental income. Subsequently, CRA issued her a s. 116 Notice of Assessment dated January 13, 2020 and issued a refund to her for $87,799.14. CRA later issued her a s. 216 Notice of Assessment dated April 23, 2020 that showed taxes owing of $8,315.35, which she has since paid.

[11] Although the purchase transaction closed and Ms. Cindric paid her taxes on the transaction, the Defendants are refusing to execute releases and have the action dismissed due to a concern that they may have contingent tax liability beyond the amounts they withheld and remitted to CRA.

Legal Principles

[12] Pursuant to Rule 49.09, a party to an accepted offer to settle may move for judgment on the accepted terms if the other party fails to comply.

[13] The court applies a two-step analysis under Rule 49.09: 1) did a settlement agreement exist; and 2) on all of the evidence, should the settlement agreement be enforced: Gelber v. Gelber, 2020 ONSC 1570 at para 18.

[14] A settlement agreement is a contract. It is subject to the general law of contract regarding offer and acceptance. For a concluded contract to exist, the parties must have: 1) had a mutual intention to create a legally binding contract; and 2) reached agreement on all of the essential terms of the settlement: Olivieri v. Sherman, 2007 ONCA 491 at para 41.

[15] Settlement agreements should be enforced unless, in all the circumstances, there is a real risk of clear injustice: L-Jalco Holdings Inc. v. Lawrynowicz & Associates, 2018 ONSC 4002 at

para. 34. The court may exercise its discretion to not enforce a settlement that it considers to be unreasonable, that would result in an injustice, or where there is good reason to not enforce it: Sentry Metrics Inc. v. Erenwein 2013 ONSC 959 at para 16. In deciding whether to enforce a settlement, the court should consider any prejudice to the parties: Olivieri at para 35; Hilco v. Engreen, 2016 ONSC 1792 at para 63; Centorame v. Centorame, 2012 ONSC 6405 at para 65, citing Milios v. Zagas, 1998 CanLII 7119 (ON CA), [1998] OJ No. 812 (CA) at para 21.

[16] There is an overriding public interest in favour of enforcing settlements to promote the interests of litigants by saving them the expense of trial, and to reduce strain on the overburdened court system: Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 at para 11. Only rarely does the court decline to enforce a settlement agreement: Gelber at para 33; L-Jalco Holdings Inc., at para 39.

Analysis

[17] In opposing this motion to enforce the settlement, the Defendants claim that they are facing contingent tax liability in excess of the amount they withheld and remitted to CRA due to the Plaintiffs’ failure to obtain a clearance certificate under s. 116 of the ITA. On the basis, they submit that they will be prejudiced if the settlement is enforced without the Plaintiff obtaining a clearance certificate. Respectfully, I am not persuaded by this submission.

[18] The question of the Defendants’ perceived contingent tax liability calls for an analysis of ss. 116 of the ITA.[^2] In Olympia Trust Company v. Canada, 2015 FCA 279 at para 29, the Federal Court of Appeal adopted the following overview of s.116:

A good overview of the scope and application of section 116 was provided by Justice Valerie Miller at paragraph 10 of her decision in Coast Capital Savings Credit Union. That paragraph reads as follows:

[10] Section 116 of the Act provides a mechanism to facilitate the collection of Part I tax from non-residents who dispose of taxable Canadian property (“TCP”). Subsections 116(1), (2) and (3) provide that the non-resident vendor must give notice to the Minister prior to the disposition of TCP or within ten days after the disposition and pay an amount on account of the tax or furnish security in respect of the disposition. Where the non-resident has complied, the Minister will issue a

[^2]: For convenience, s. 116 of the ITA is reproduced at Schedule “A” to this Endorsement.

certificate to the non-resident and the purchaser. However, if the non-resident has

not complied, the purchaser becomes vicariously liable for the tax. Subsection

116(5) provides that the purchaser of TCP may be liable for tax owed by the non-

resident vendor. It is a collection tool and it allows the Minister to collect the non-

resident vendor’s tax from the purchaser of TCP. [Emphasis added]

[19] Under ss. 116(1) and (2) of the ITA, a non-resident taxpayer who is disposing of taxable Canadian property (“TCP”) has the option of applying to the CRA for a “clearance certificate” for the withholdings at source on the disposition.[^3] If the non-resident taxpayer decides not to apply for a s.116 certificate, then ss. 116(5) requires the purchaser to remit taxes based on the amount paid to the disposing non-resident for the TCP, as further described below. The purchaser is the person to whom the non-resident disposes of TCP: ss. 116(3) of the ITA; Olympia at para 30.

[^3]: Subsections 116(1) and (2) of the ITA provide:

116 (1) If a non-resident person proposes to dispose of any taxable Canadian property (other than property described in subsection (5.2) and excluded property) the non-resident person may, at any time before the disposition, send to the Minister a notice setting out

(a) the name and address of the person to whom he proposes to dispose of the property (in this section referred to as the “proposed purchaser”);

(b) a description of the property sufficient to identify it;

(c) the estimated amount of the proceeds of disposition to be received by the non-resident person for the property; and

(d) the amount of the adjusted cost base to the non-resident person of the property at the time of the sending of the notice.

(2) Where a non-resident person who has sent to the Minister a notice under subsection 116(1) in respect of a proposed disposition of any property has

(a) paid to the Receiver General, as or on account of tax under this Part payable by the non-resident person for the year, 25% of the amount, if any, by which the estimated amount set out in the notice in accordance with paragraph 116(1)(c) exceeds the amount set out in the notice in accordance with paragraph 116(1)(d), or

(b) furnished the Minister with security acceptable to the Minister in respect of the proposed disposition of the property,

the Minister shall forthwith issue to the non-resident person and the proposed purchaser a certificate in prescribed form in respect of the proposed disposition, fixing therein an amount (in this section referred to as the “certificate limit”) equal to the estimated amount set out in the notice in accordance with paragraph 116(1)(c).

[20] Unless a clearance certificate under ss. 116(4) is issued, ss. 116(5) of the ITA requires a purchaser to make an income tax instalment payment on behalf of the disposing non-resident by withholding and remitting a portion of the purchase price for the TCP:

Liability of purchaser

(5) Where in a taxation year a purchaser has acquired from a non-resident person any taxable Canadian property (other than depreciable property or excluded property) of the non-resident person, the purchaser, unless

(a) after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada,

(a.1) subsection (5.01) applies to the acquisition, or

(b) a certificate under subsection 116(4) has been issued to the purchaser by the

Minister in respect of the property,

is liable to pay, and shall remit to the Receiver General within 30 days after the end of the

month in which the purchaser acquired the property, as tax under this Part for the year on

behalf of the non-resident person, 25% of the amount, if any, by which

(c) the cost to the purchaser of the property so acquired exceeds

(d) the certificate limit fixed by the certificate, if any, issued under subsection 116(2) in respect of the disposition of the property by the non-resident person to the purchaser,

and is entitled to deduct or withhold from any amount paid or credited by the purchaser to

the non-resident person or otherwise recover from the non-resident person any amount paid by the purchaser as such a tax. [Emphasis added]

[21] Pursuant to ss. 116(5), where a non-resident disposes of TCP and decides to not apply for a certificate under s. 116, as essentially happened in this case, then the purchaser is required to withhold and remit to CRA 25% of their purchase price for the property within 30 days after the end of the month in which the purchaser acquired the property. In practice, as the Federal Court of Appeal has observed, the absence of a s.116 certificate typically will cause a purchaser to avail itself of this withholding and remittance mechanism to discharge its obligation to pay the tax under ss. 116(5): Olympia at para 41. Later, upon filing a Canadian income tax return, the disposing non-resident will stipulate the amount, if any, of its tax liability under s. 115 (Non-resident’s taxable income in Canada), and obtain a refund of the excess, if any, of the ss. 116(5) payment over the amount of the disposing non-resident's actual tax liability: Olympia at para 36.

[22] In explaining the tax payment process under s. 116 of the ITA, the Federal Court of Appeal observed in Olympia at para 38:

[T]he application of subsection 116(5) is relatively straightforward. If no "clearance

certificate" has been issued by the Minister, the Section 116 Purchaser will be liable to pay

a tax of essentially 25% of the purchase price payable for the TCP. The Section 116

Purchaser is free to pay this tax out of its own resources and then seek to recover it from the Disposing Non-Resident, or it c an deduct or withhold the requisite amount from the amount

payable to the Disposing Non-Resident as the purchase price of the TCP. [Emphasis added]

[23] It follows that a purchaser’s liability related to the purchase of real property from a non- resident is 25% of the purchase price for the taxable Canadian property. A purchaser simply has no contingent tax liability beyond this. The Defendants cited no authority to suggest otherwise.

[24] As the Plaintiffs did not obtain a s. 116 certificate, the Defendants exercised their entitlement under ss. 116(5) to withhold and remit 25% of the cost to acquire the property, which they did. By making the remittance, the Defendants discharged their tax liability in connection with the purchase. Ms. Cindric later paid taxes on the purchase transaction in accordance with the apportionments that the parties had agreed to, which is not disputed. In the circumstances, I see no further contingent property tax liability arising from this transaction.

[25] Similarly, I am not persuaded that the Defendants have contingent liability related to any rent paid in respect of the transaction, beyond the amounts they withheld and remitted to CRA.

[26] The tax rules for the payment of rent to a non-resident are analogous to those described earlier for the disposition of property. A Canadian rent payor is required to withhold and remit to CRA 25% of gross rents paid to a non-resident under ss. 212(1)(d) of the ITA, which states:

Tax

212 (1) Every non-resident person shall pay an income tax of 25% on every amount that a person resident in Canada pays or credits, or is deemed by Part I to pay or credit, to the non-resident person as, on account or in lieu of payment of, or in satisfaction of

Rents, royalties, etc.

(d) rent, royalty or similar payment, including, but not so as to restrict the generality of the foregoing, any payment

(i) for the use of or for the right to use in Canada any property

[27] The relevant provisions relating to a payor’s obligations are set out in ss. 215(1) and (6) of the ITA, which provide:

Withholding and remittance of tax

215 (1) When a person pays, credits or provides, or is deemed to have paid, credited or provided, an amount on which an income tax is payable under this Part, or would be so payable if this Act were read without reference to subparagraph 94(3)(a)(viii) and to subsection 216.1(1), the person shall, notwithstanding any agreement or law to the contrary, deduct or withhold from it the amount of the tax and forthwith remit that amount

to the Receiver General on behalf of the non-resident person on account of the tax and shall submit with the remittance a statement in prescribed form.

Liability for tax

(6) Where a person has failed to deduct or withhold any amount as required by this section

from an amount paid or credited or deemed to have been paid or credited to a non-resident person, t hat person is liable to pay as tax under this Part on behalf of the non-resident

person the whole of the amount that should have been deducted or withheld, and is entitled to deduct or withhold from any amount paid or credited by that person to the non-resident person or otherwise recover from the non-resident person any amount paid by that person as tax under this Part on behalf thereof. [Emphasis added]

[28] Like the situation involving the purchase of property from a non-resident, a rent payor’s tax obligation to the CRA is limited to the required withholdings on their payments of rent to a non-resident. A Canadian resident who fails to withhold and remit the 25% income tax on rental income under ss. 212(1)(d) is liable to pay, as Part XIII tax on behalf of the non-resident, the whole amount not deducted or withheld under ss. 215(6): Pechet v. Canada, 2009 FCA 341 at para 3. In my view, there is no contingent tax liability beyond this amount. The Defendants referred me to no authority to suggest otherwise.

[29] Here, the Defendants deducted and remitted 25% of the rent amount owed to the Plaintiffs in accordance with the rent allocation under the transaction. As the Defendants’ tax liability is limited under ss. 215(6) to this amount, which they remitted to CRA when the transaction closed, I am not persuaded that the Defendants now face contingent tax liability for rent: Pechet at para 3.

[30] The Defendants also claim that Ms. Cindric’s failure to properly report the disposition to CRA somehow created a contingent tax liability for themselves. Although Ms. Cindric may not

have complied with the notice requirements under ss. 116(3) of the ITA, I am not persuaded that this non-compliance triggered contingent liability for the Defendants, as explained below.

[31] Subsection 116(3) of the ITA provides:

Notice to Minister

(3) Every non-resident person who in a taxation year disposes of any taxable Canadian property of that person (other than property described in subsection 116(5.2) and excluded property) shall, not later than 10 days after the disposition, send to the Minister, by registered mail, a notice setting out

(a) the name and address of the person to whom the non-resident person disposed of the property (in this section referred to as the “purchaser”),

(b) a description of the property sufficient to identify it, and

(c) a statement of the proceeds of disposition of the property and the amount of its adjusted cost base to the non-resident person immediately before the disposition,

unless the non-resident person has, at any time before the disposition, sent to the Minister a notice under subsection 116(1) in respect of any proposed disposition of that property and

(d) the purchaser was the proposed purchaser referred to in that notice,

(e) the estimated amount set out in that notice in accordance with paragraph 116(1)(c) is equal to or greater than the proceeds of disposition of the property, and

(f) the amount set out in that notice in accordance with paragraph 116(1)(d) does not exceed the adjusted cost base to the non-resident person of the property immediately before the disposition.

[32] I accept the Plaintiffs’ submission that the purpose of making a filing under ss.116(3) is to notify CRA of a disposition so the transaction can be flagged and matched to incoming withholding tax remittances. To this end, the requirement to file within 10 days falls before the payor’s deadline for remitting the tax withheld for this purpose. I also accept that a secondary purpose of making a ss. 116(3) filing is to allow CRA to obtain records related to the transaction for its review.

[33] Although Ms. Cindric did not make a ss. 116(3) filing, I am satisfied on the record before the court that the Defendants remitted the correct amount of tax withheld on the transaction. I also accept that CRA completed its review of the transaction, as reflected by its notices of assessment for both property and rent taxes owed by Ms. Cindric, which she paid to satisfy her tax obligations on these amounts pursuant to the allocations under the transaction. As a result, and regardless of whether or not Ms. Cindric made the required disclosure under ss. 116(3), I see no basis to find a

tax liability to the Defendants beyond the ss.116(5) amount which they extinguished by remitting 25% of the purchase price to CRA on closing. The Defendants have not raised any other basis to support their claim of a contingent tax liability, and cited no legislation or caselaw to support their position on this point.

[34] Apart from their contingent tax liability position, the Defendants raised no other grounds to suggest that they would incur any prejudice if the settlement is enforced.

[35] Based on the foregoing, I am satisfied that the settlement agreement should be enforced. Neither side disputes the fact that they intended to enter into a binding agreement to settle this action. The Minutes of Settlement of October 18, 2018 reflect the agreement of the parties on all essential terms of the settlement. In my view, they arrived at an agreement to settle: Olivieri at para 41. The terms of the settlement are relatively simple and clear. No drafting mistakes were argued on the motion. The parties clearly contemplated the tax implications of the settlement and addressed them in the minutes that were prepared and reviewed by their counsel. As the parties made no submissions to the contrary, I accept that they settled on reasonable terms.

[36] In my view, this is not one of those rare cases where the court should exercise its discretion to decline to enforce the settlement. The Defendants have not shown prejudice, a real risk of clear injustice, or any other good reason to not enforce the settlement: Olivieri at para 35; L-Jalco at para 34; Sentry at para 16.

[37] The Defendants claim that Ms. Cindric’s failure to report the disposition to CRA amounted to unreasonable conduct on her part that breached paragraph (d) of the settlement agreement, which called for the Plaintiffs to obtain tax advice and the parties to act reasonably in implementing any such tax advice. However, the Plaintiffs filed an affidavit from their accountant to disclose his tax advice for the transaction, which is largely consistent with the approach they took in dealing with the tax issues in this matter. As such, I am persuaded that the Plaintiffs acted reasonably in the course of implementing his tax advice.

[38] Furthermore, I do not accept that the Plaintiffs breached the settlement agreement in light of how both sides mutually addressed the tax aspects for the transaction.

[39] On December 7, 2018, the purchase transaction closed. Subsequently, on January 21, 2019, the Defendants asked the Plaintiffs to produce their request for a clearance certificate. Later that day, the Plaintiffs advised that they had not requested a clearance certificate, and advised through counsel of their understanding that the Defendants’ obligation in the circumstances was to remit

$250,000.00 (i.e., 25% of the purchase transaction amount) to CRA with reference to Ms. Cindric’s ITN number. Shortly thereafter, the Defendants’ lawyer remitted a total of $250,000.00 to CRA by sending $199,500.00 on January 28, 2019 as the property tax remittance, and $50,500.00 on January 29, 2019 as the rental tax remittance. The Defendants’ lawyer copied the Plaintiffs’ lawyer on both remittance letters, which set out the withholding figures by referring to the property and rent allocations for the transaction.

[40] At no time before remitting funds to CRA did the Defendants raise any concerns that the Plaintiffs had acted unreasonably. To the contrary, the Defendants accepted the Plaintiffs’ proposed approach for dealing with the tax issues by withholding and remitting funds to CRA on January 28 and 29, 2019, respectively. Only later on May 14, 2020 did the Defendants revisit the clearance certificate issue in responding to the Plaintiffs’ letter of May 7, 2020, which had sought a dismissal order and signed release to conclude the settlement.

[41] In the circumstances, I find that the Plaintiffs reasonably fulfilled their obligations under the settlement agreement.

[42] The Plaintiff’s pre-settlement position is no longer intact, as they have transferred their interest in the property and paid tax on the transaction. As such, I find that they will be prejudiced if the settlement is not enforced. In contrast, I see no prejudice to the Defendants by enforcing the settlement. I add that Ms. Cindric is over 90 years of age, and wants closure to this litigation.

[43] Accordingly, I find that the settlement should be enforced.

Outcome

[44] Based on the foregoing, the motion is granted.

[45] The Plaintiffs were successful and are entitled to their costs on a partial indemnity scale. Having heard the costs submissions of the parties, I fix costs of this motion at $9,746.58, inclusive

of taxes and disbursements, which I find to be fair and proportional to the nature and complexity of the issues on this motion. Although the Defendants took issue with the cost to obtain an affidavit from the Plaintiffs’ accountant, I am persuaded that this was a reasonable disbursement given the Defendants’ claim that the Plaintiffs did not reasonably implement tax advice in this matter.

[46] Accordingly, the following is ordered:

a. Judgment against the Defendants is granted in accordance with paragraphs (g) and

(i) of the Minutes of Settlement dated October 3, 2018; and

b. The Defendants shall pay costs of $9,746.58 to the Plaintiffs forthwith.

Doi J.

Date: November 18, 2020

Schedule “A”

Disposition by non-resident person of certain property

116 (1) If a non-resident person proposes to dispose of any taxable Canadian property (other than property described in subsection (5.2) and excluded property) the non-resident person may, at any time before the disposition, send to the Minister a notice setting out

(a) the name and address of the person to whom he proposes to dispose of the property (in this section referred to as the “proposed purchaser”);

(b) a description of the property sufficient to identify it;

(c) the estimated amount of the proceeds of disposition to be received by the non-resident person for the property; and

(d) the amount of the adjusted cost base to the non-resident person of the property at the time of the sending of the notice.

Certificate in respect of proposed disposition

(2) Where a non-resident person who has sent to the Minister a notice under subsection 116(1) in respect of a proposed disposition of any property has

(a) paid to the Receiver General, as or on account of tax under this Part payable by the non-resident person for the year, 25% of the amount, if any, by which the estimated amount set out in the notice in accordance with paragraph 116(1)(c) exceeds the amount set out in the notice in accordance with paragraph 116(1)(d), or

(b) furnished the Minister with security acceptable to the Minister in respect of the proposed disposition of the property,

the Minister shall forthwith issue to the non-resident person and the proposed purchaser a certificate in prescribed form in respect of the proposed disposition, fixing therein an amount (in this section referred to as the “certificate limit”) equal to the estimated amount set out in the notice in accordance with paragraph 116(1)(c).

Notice to Minister

(3) Every non-resident person who in a taxation year disposes of any taxable Canadian property of that person (other than property described in subsection 116(5.2) and excluded property) shall, not later than 10 days after the disposition, send to the Minister, by registered mail, a notice setting out

(a) the name and address of the person to whom the non-resident person disposed of the property (in this section referred to as the “purchaser”),

(b) a description of the property sufficient to identify it, and

(c) a statement of the proceeds of disposition of the property and the amount of its adjusted cost base to the non-resident person immediately before the disposition,

unless the non-resident person has, at any time before the disposition, sent to the Minister a notice under subsection 116(1) in respect of any proposed disposition of that property and

(d) the purchaser was the proposed purchaser referred to in that notice,

(e) the estimated amount set out in that notice in accordance with paragraph 116(1)(c) is equal to or greater than the proceeds of disposition of the property, and

(f) the amount set out in that notice in accordance with paragraph 116(1)(d) does not exceed the adjusted cost base to the non-resident person of the property immediately before the disposition.

Certificate in respect of property disposed of

(4) Where a non-resident person who has sent to the Minister a notice under subsection 116(3) in respect of a disposition of any property has

(a) paid to the Receiver General, as or on account of tax under this Part payable by the non-resident person for the year, 25% of the amount, if any, by which the proceeds of disposition of the property exceed the adjusted cost base to the non-resident person of the property immediately before the disposition, or

(b) furnished the Minister with security acceptable to the Minister in respect of the disposition of the property,

the Minister shall forthwith issue to the non-resident person and the purchaser a certificate in prescribed form in respect of the disposition.

Liability of purchaser

(5) Where in a taxation year a purchaser has acquired from a non-resident person any taxable Canadian property (other than depreciable property or excluded property) of the non-resident person, the purchaser, unless

(a) after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada,

(a.1) subsection (5.01) applies to the acquisition, or

(b) a certificate under subsection 116(4) has been issued to the purchaser by the Minister in respect of the property,

is liable to pay, and shall remit to the Receiver General within 30 days after the end of the month in which the purchaser acquired the property, as tax under this Part for the year on behalf of the non-resident person, 25% of the amount, if any, by which

exceeds

(c) the cost to the purchaser of the property so acquired

(d) the certificate limit fixed by the certificate, if any, issued under subsection 116(2) in respect of the disposition of the property by the non-resident person to the purchaser,

and is entitled to deduct or withhold from any amount paid or credited by the purchaser to the non-resident person or otherwise recover from the non-resident person any amount paid by the purchaser as such a tax.

Treaty-protected property

(5.01) This subsection applies to the acquisition of a property by a person (referred to in this subsection as the “purchaser”) from a non-resident person if

(a) the purchaser concludes after reasonable inquiry that the non-resident person is, under a tax treaty that Canada has with a particular country, resident in the particular country;

(b) the property would be treaty-protected property of the non-resident person if the non-resident person were, under the tax treaty referred to in paragraph (a), resident in the particular country; and

(c) the purchaser provides notice under subsection (5.02) in respect of the acquisition.

Notice by purchaser in respect of an acquisition of property

(5.02) A person (referred to in this subsection as the “purchaser”) who acquires property from a non-resident person provides notice under this subsection in respect of the acquisition if the purchaser sends to the Minister, on or before the day that is 30 days after the date of the acquisition, a notice setting out

(a) the date of the acquisition;

(b) the name and address of the non-resident person;

(c) a description of the property sufficient to identify it;

(d) the amount paid or payable, as the case may be, by the purchaser for the property; and

(e) the name of the country with which Canada has concluded a tax treaty under which the property is a treaty-protected property for the purposes of subsection (5.01) or (6.1), as the case may be.

Gifts, etc.

(5.1) If a non-resident person has disposed of or proposes to dispose of a life insurance policy in Canada, a Canadian resource property or a taxable Canadian property other than

(a) excluded property, or

(b) property that has been transferred or distributed on or after the non- resident person’s death and as a consequence thereof

to any person by way of gift inter vivos or to a person with whom the non-resident person was not dealing at arm’s length for no proceeds of disposition or for proceeds of disposition less than the fair market value of the property at the time the non-resident person so disposed of it or proposes to dispose of it, as the case may be, the following rules apply:

(c) the reference in paragraph 116(1)(c) to “the proceeds of disposition to be received by the non-resident person for the property” shall be read as a reference to “the fair market value of the property at the time the non-resident person proposes to dispose of it”,

(d) the references in subsections 116(3) and (4) to “the proceeds of disposition of the property” shall be read as references to “the fair market value of the property immediately before the disposition”,

(e) the references in subsection 116(5) to “the cost to the purchaser of the property so acquired” shall be read as references to “the fair market value of the property at the time it was so acquired”, and

(f) the reference in subsection 116(5.3) to “the amount payable by the taxpayer for the property so acquired” shall be read as a reference to “the fair market value of the property at the time it was so acquired”.

Certificates for dispositions

(5.2) If a non-resident person has, in respect of a disposition, or a proposed disposition, in a taxation year to a taxpayer of property (other than excluded property) that is a life insurance policy in Canada, a Canadian resource property, a property (other than capital property) that is real property, or an immovable, situated in Canada, a timber resource property, depreciable property that is a taxable Canadian property or any interest in, or for civil law any right in, or any option in respect of, a property to which this subsection applies (whether or not that property exists),

(a) paid to the Receiver General, as or on account of tax under this Part payable by the non-resident person for the year, such amount as is acceptable to the Minister in respect of the disposition or proposed disposition of the property, or

(b) furnished the Minister with security acceptable to the Minister in respect of the disposition or proposed disposition of the property,

the Minister shall forthwith issue to the non-resident person and to the taxpayer a certificate in prescribed form in respect of the disposition or proposed disposition fixing therein an amount equal to the proceeds of disposition, proposed proceeds of disposition or such other amount as is reasonable in the circumstances.

Liability of purchaser in certain cases

(5.3) Where in a taxation year a taxpayer has acquired from a non-resident person property referred to in subsection 116(5.2),

(a) the taxpayer, unless subsection (5.01) applies to the acquisition or unless after reasonable inquiry the taxpayer had no reason to believe that the non- resident person was not resident in Canada, is liable to pay, as tax under this Part for the year on behalf of the non-resident person, 50% of the amount, if any, by which

(i) the amount payable by the taxpayer for the property so acquired

exceeds

(ii) the amount fixed in the certificate, if any, issued under subsection 116(5.2) in respect of the disposition of the property by the non-resident person to the taxpayer

and is entitled to deduct or withhold from any amount paid or credited by the taxpayer to the non-resident person or to otherwise recover from the non- resident person any amount paid by the taxpayer as such a tax; and

(b) the taxpayer shall, within 30 days after the end of the month in which the taxpayer acquired the property, remit to the Receiver General the tax for which the taxpayer is liable under paragraph 116(5.3)(a).

Presumption

(5.4) Where there has been a disposition by a non-resident of a life insurance policy in Canada by virtue of subsection 148(2) or any of paragraphs (a) to (c) and (e) of the definition disposition in subsection 148(9), the insurer under the policy shall, for the purposes of subsections 116(5.2) and (5.3) be deemed to be the taxpayer who acquired the property for an amount equal to the proceeds of disposition as determined under section 148.

Definition of excluded property

(6) For the purposes of this section, excluded property of a non-resident person means

(a) a property that is a taxable Canadian property solely because a provision of this Act deems it to be a taxable Canadian property;

(a.1) a property (other than real or immovable property situated in Canada, a Canadian resource property or a timber resource property) that is described in an inventory of a business carried on in Canada by the person;

(b) a security that is

(i) listed on a recognized stock exchange, and

(ii) either

(A) a share of the capital stock of a corporation, or

(B) SIFT wind-up entity equity;

(c) a unit of a mutual fund trust;

(d) a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation;

(e) property of a non-resident insurer that

(i) is licensed or otherwise authorized under the laws of Canada or a province to carry on an insurance business in Canada, and

(ii) carries on an insurance business, within the meaning of subsection 138(1) of the Act, in Canada;

(f) property of an authorized foreign bank that carries on a Canadian banking business;

(g) an option in respect of property referred to in any of paragraphs (a) to (f) whether or not such property is in existence;

(h) an interest, or for civil law a right, in property referred to in any of paragraphs (a) to (g); and

(i) a property that is, at the time of its disposition, a treaty-exempt property of the person.

Treaty-exempt property

(6.1) For the purpose of subsection (6), a property is a treaty-exempt property of a non- resident person, at the time of the non-resident person’s disposition of the property to another person (referred to in this subsection as the “purchaser”), if

(a) it is, at that time, a treaty-protected property of the non-resident person; and

(b) where the purchaser and the non-resident person are related at that time, the purchaser provides notice under subsection (5.02) in respect of the disposition.

Application of s. 138(12)

(7) The definitions in subsection 138(12) apply to this section.

COURT FILE NO.: CV-13-4245

DATE: 2020 11 18

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Marija Cindric and The Estate of Mile Cindric, Plaintiffs

AND:

Mica Mesic and Marko Mesic, Defendants

BEFORE: DOI J.

COUNSEL: J. Gray, for the Plaintiffs

W. Kaufmann, for the Defendants

ENDORSEMENT

Doi J.

DATE: November 18, 2020