How are lawyers involved when purchasing a home?

For many first time home buyers, purchasing a home can take a lot more time and effort than anticipated.  Finding a home is hard enough, but what needs to be completed afterward can be confusing and time-consuming.

This article will discuss the steps involved in completing a real-estate transaction after a deal has been reached, and things to bear in mind.

After your offer is accepted on a home, you need a lawyer to ensure all necessary paperwork is completed prior to your possession day.  You do not want to be a purchaser scrambling the day before possession to meet the requirements of your lender.

Concurrent or prior to making an offer on a home, you will usually deal with a mortgage broker or bank directly to obtain a mortgage. Once your financing is in place, the following is a list of the steps and documents involved leading up to possession day from a legal perspective:

  • Confirmation of financing and mortgage instructions from the lender must be provided to the lawyer. If you are dealing through a mortgage broker, the lawyer and mortgage broker will usually work together to ensure instructions are received. If not, you will need to follow up with the lender to have mortgage instructions sent to your lawyer.
  • Confirmation that adequate insurance is in place for the home on your possession day. This is always required by the lender, or else mortgage funds will not be advanced.
  • An estoppel certificate is required if the property is a condominium.
  • Once the lawyer receives the mortgage instructions, the mortgage and all required paperwork is prepared. Bear in mind that this takes time to do i.e. the lawyer will need the mortgage instructions at least several days prior to the possession date, ideally a week or more.
  • The lawyer then determines the “cash to mortgage”. This is the amount of funds over and above the mortgage you will have to pay for the home, legal fees, property taxes, land title fees to transfer title, Canada Mortgage and Housing insurance premiums (if applicable), etc.
  • A component of “cash to mortgage” is interest that will be paid to the seller. Interest generally must be paid on any purchase where a mortgage registered and the sale agreement provides for the same. On the possession date of your new home, your lawyer will have the “cash to mortgage” but he/she will not yet have the mortgage funds. The mortgage funds cannot be requisitioned until the title has registered in your name. As a result, most real estate agreements require the purchaser to pay the lender interest for the short time period when the seller does not have the sale proceeds in their entirety. Therefore, you pay interest on the amount they are owed during the first few days that you have possession. This does not result in double payment of interest, as interest does not accrue on your mortgage until it is registered.
  • You then meet with the lawyer to sign all requisite documents and provide the cash to mortgage to the lawyer. You will have to bring identification, a certified cheque/bank draft for the cash to mortgage, and banking information for property taxes and mortgage payments and proof of insurance.  The lawyer handles registering you for monthly tax installment payments to come directly from your account, interest free, if the municipality you are purchasing in offers such a program.  However, there are certain instances where property taxes must be paid to the mortgage company, who then pays the taxes on your behalf.
  • The lawyer then transmits the cash to mortgage to the seller’s lawyer. Once the cash to mortgage is received by the seller’s lawyer, you are generally good to go for possession day.
  • The lawyer then registers the transfer of title. Once title issues in your name, the lawyer requests the mortgage funds, which are then provided to the seller’s lawyer. This largely completes the transaction.

As you can see, it takes some time to ensure all the pieces are in place before you can take possession of your new home.  It is important to give yourself adequate time prior to possession day to ensure these things are complete, or else you risk possession day being pushed back or losing your deposit for failing to complete the transaction as agreed

For further information, please contact:

Curtis P. Clavelle
Direct: 306-933-1341
Email: c.clavelle@rslaw.com

Delay in Professional Disciplinary Cases

Abrametz v Law Society of Saskatchewan is an important new decision from the Saskatchewan Court of Appeal dealing with the impact of delay in professional disciplinary cases.

The charges against a lawyer under discipline, Peter Abrametz, were stayed by the Court of Appeal because of the time it took to investigate and prosecute the case. The investigation in Abrametz started in 2012 and ended with a hearing in 2018. The member was under an interim suspension since 2013.

Some of the important takeaways from Abrametz include:

  1. The courts will look at the delay both in the investigation and prosecution of the charges. This is different than criminal cases, where the courts typically only look at the prosecution length;
  2. To get a stay of charges, there must be “undue delay”. The Court looked at the Law Society’s reasons for delay and attempted to determine which delays were attributable to the regulator, as opposed to the member;
  3. The Law Society was determined to be responsible for 32 ½ months of delay, which was found to be unreasonable;
  4. In order for charges to be stayed, the member had to establish that there was harm or disadvantage suffered that was serious enough that to offend the public’s sense of decency and fairness. The interim suspension against Mr. Abrametz was a significant consideration in relation to this factor.

Abrametz is an extension of the Supreme Court’s decision in R. v. Jordan (2016), 1 S.C.R. 631 dealing with delay in criminal proceedings.

The impact of Abrametz is that it is now more important than ever that regulators investigate and prosecute cases swiftly. To the extent that delays are experienced, regulators should keep careful records as to why the delays are occurring and to who those delays are attributable. If they are delays caused by the member, those delays may not be counted against the regulator in determining whether there was “undue delay”.

Sean Sinclair of Robertson Stromberg LLP would be pleased to answer any questions or concerns that you have in relation to the Abrametz decision or any other regulatory issues. Sean can be reached at s.sinclair@rslaw.com or 306-933-1367.

Tax Aspects of Dividends Paid by Corporations

Private corporations pay dividends of various kinds, often in order to achieve a particular result for the purposes of the Income Tax Act (Canada).  

The Business Corporations Act (Saskatchewan) distinguishes between a dividend (which, under corporate law, means the distribution of an equal amount, per share, of money or other property to the holders of all shares of a particular class of shares) and the payment of the value of a particular share by the corporation to the holder of that share upon the redemption or purchase for cancellation of the share. Nevertheless, the Income Tax Act (Canada) deems that, generally, the excess of the amount paid to the shareholder (upon redemption or purchase of a share for cancellation) over the paid-up capital of that share is also a dividend for income tax purposes. Any of the following references in this memo to a dividend includes a deemed dividend. Dividends and deemed dividends must be authorized by a resolution adopted by the directors of a corporation.

Canadian-controlled private corporations are generally eligible for a low rate of corporate income tax on active business income. In Saskatchewan, the combined rate of such federal and provincial tax is 11%. If all of the taxable income reported by a corporation was subject to that low rate of tax, the only kind of dividend that the corporation can pay is a taxable “non-eligible” dividend. Such dividends do not require any form of designation or election by the corporation.  In the hands of a recipient that is a Canadian resident individual, such dividends qualify for a dividend tax credit that reduces the combined federal and Saskatchewan marginal rate of income tax on the dividend to as little as 6.87% and to no more than 40.37% (depending on the amount of other income reported by the recipient).

If a Canadian-controlled private corporation earns active business income that is in excess of the amount that is eligible for the low rate of corporate income tax, it must pay tax at a higher rate. In Saskatchewan, the combined rate of such federal and provincial tax is 27%. Having paid that higher rate of tax, however, the corporation can add 72% of such active business income to its general rate income pool (“GRIP”). If the corporation makes a designation (which it does by informing the recipients of a dividend in writing), it can pay an eligible dividend to a maximum of the balance in its GRIP as of the end of the current taxation year. (Eligible dividends paid by such a corporation are deducted from its GRIP and any eligible dividends received by such a corporation are also added to its GRIP.)  Since a public corporation must pay income tax at the combined rate of 27% on all of its business income, a public corporation can designate any amount of dividends as eligible dividends.

In the hands of a recipient that is a Canadian resident individual, eligible dividends qualify for an enhanced dividend tax credit that reduces the combined federal and Saskatchewan marginal rate of income tax on the dividend to as little as 0% and to no more than 29.64% (depending on the amount of other income reported by the recipient).

Some of the federal income tax paid by a Canadian-controlled private corporation on investment income (which includes taxable capital gains), to the extent of 30 2/3% of that income, is refundable if the corporation pays dividends. A private corporation resident in Canada (regardless of whether it is Canadian-controlled) also pays refundable Part IV tax at the rate of 38 1/3% on all dividends that it receives (other than on dividends received from a connected corporation on which no tax refund was received by the payer thereof). Part IV tax paid on eligible dividends received is tracked by way of the eligible refundable dividend tax on hand (“ERDTOH”) account, and is refundable (at the rate $0.38333 per $1.00 of dividends paid) upon the payment of either an eligible or non-eligible dividend. All other refundable tax paid is tracked by way of the non-eligible refundable dividend tax on hand (“NERDTOH”) account, and is only refundable (at the same rate as above) upon the payment of a non-eligible dividend.

Certain sources of income are tax-free. Common examples are one-half of a capital gain and a death benefit received by the beneficiary of a life insurance policy. A private corporation resident in Canada (regardless of whether it is Canadian-controlled) tracks in its capital dividend account (“CDA”) the tax-free half of capital gains that it realizes plus the excess of any death benefits that it receives from a life insurance policy over the adjusted cost basis of the policy, minus one-half of any capital losses that it realizes. The corporation may elect (by filing form T2054 with the Canada Revenue Agency) to pay a capital dividend to a maximum of the corporation’s current balance in its CDA. A capital dividend is tax-free to a Canadian resident recipient. A private corporation decreases its CDA in respect of any capital dividends that it pays and increases its CDA in respect of any capital dividends that it receives.

The provisions of the Income Tax Act (Canada) related to dividends are more complicated than the simplified description set out in this memo. You should only pay eligible dividends or capital dividends after obtaining advice from a tax accountant or a tax lawyer. Melvin Gerspacher is a tax lawyer. You can contact him at m.gerspacher@rslaw.com or at 306-380-5753.

Insurance Companies Cannot Compel Customers to Undergo Genetic Testing

In a recent Reference re Genetic Non-Discrimination Act, 2020 SCC 17, the Supreme Court of Canada upheld a federal law that forbids companies from making people undergo genetic testing before buying insurance or other services.

The Genetic Non-Discrimination Act (the Act) also outlaws the practice of requiring the disclosure of existing genetic test results as a condition for obtaining such services or entering into a contract.

The act is intended to ensure Canadians can take genetic tests to help identify health risks without fear that the results will pose a disadvantage when seeking life or health insurance.

In a 5-4 decision, the Supreme Court held that the measures are a valid exercise of Parliament’s power over criminal law set out in the Constitution.

Penalties for violating the provisions of the Act include a fine of up to $1 million and five years in prison.

This case came to the Supreme Court as an appeal from a provincial “reference.” References are questions that governments ask courts for their opinion on. Reference re Genetic Non-Discrimination Act began as a reference to the Quebec Court of Appeal by the Quebec government.

For more information, contact Jennifer D. Pereira, Q.C. at j.pereira@rslaw.com

Am I entitled to be notified that my family member has made a new Will?

When a loved one passes away unexpectedly, the shock can be made worse by finding out that the deceased also had made a new will totally contrary to their former will.

Sometimes clients will ask me if it is legal for their loved one to make a new will, cutting out family members, or naming a new executor, all without notifying the prior executor or beneficiaries?

The answer is that yes, a person is entitled to make as many wills as they want, provided they have capacity. Moreover, there is no law requiring a will-maker to notify their prior executor, or their affected beneficiaries.

However, if you are making a new will, it is good advice to notify all of your affected beneficiaries or prior executor. Explaining what your wishes are during your lifetime, can better avoid the chance that they are later surprised by your new will, or suspicious of what motivated it.

James Steele’s preferred practise area is estate litigation, including will challenges, executor disputes, power of attorney issues, etc. Contact James Steele at 1-306-933-1338 or j.steele@rslaw.com. The above is for general information only. Parties should always seek legal advice prior to taking action in specific situations. 

Month: July 2020