info@oneflatfee.ca 604-725-1000 Value of properties sold as of Apr 26, 2024: $1.4 Billion +

Certificates of pending litigation & taxation on disposition of properties


Certificates of pending litigation

The first is certificates of pending litigation that are on title to a property. When a lawsuit is commenced against a person and that lawsuit claims an interest in a property, notice of the lawsuit can be registered against the property. The court issues a Certificate of Pending litigation which is then registered on title to the property by the person starting the lawsuit. The lawsuit is now a charge against the property and if the claimant is successful in the lawsuit it is a claim on the property. So anyone who takes title with a registered certificate of pending litigation on it takes subject to whatever rights the court grants the claimant to the property once the lawsuit is decided.

Therefore any purchaser will want the certificate of pending litigation vacated before closing. The standard wording in the agreement of purchase and sale about the buyer getting clear title puts the onus on the vendor to clear the title of the certificate. However agents for vendors and buyers should look make sure that the certificate can be vacated. This is litigation after all and the claimant has to agree to the conditions under which he will allow the certificate to be removed. This may take time to negotiate so agents should take that into account in setting the closing dates.

Taxation on disposition of properties

The second matter is taxation on disposition of properties. A couple of agents called me recently about their clients gifting their investment properties to their children. The agents and clients seemed to think that if the property was given to a child there was no capital gains tax. That is not the case. The general rule is that if a property, whether an investment one or otherwise, is transferred, whether for money, as a gift, or a deemed disposition on death or change in residency out of Canada, the property is considered to have been disposed of at fair market value. The capital gain has to be determined and any tax on that gain paid. Certain property transfers are exempt from capital gains, e.g. a disposition of a principal residence and a transfer to a spouse under certain circumstances including a transfer on death. A gift of an investment property does not benefit from any of the capital gains exemptions. Taxation is a very complicate area and you should not be answering taxation questions for your clients. Tell them to speak to a good tax accountant or lawyer.