Toronto Condo and Real Estate Blog

New Law Requires Real Estate Agents to Collect and Verify ID of Buyers and Sellers

New federal laws and regulations designed to prevent money laundering and anti-terrorist financing went into effect June 23, 2008. Realtors must obtain proof of identity from all parties in any real estate transaction, even if one of the parties is not represented by a real estate agent. Realtors must also track the source of funds received during the course of a real estate transaction, such as the deposit. If the client is a corporation, corporate documentation and the names of the corporation directors must be provided and the corporation must disclose if a third party is involved in the transaction.

“Real estate agents have had legal obligations under the federal government’s push to prevent criminal activity and terrorism since 2001, when Canada’s first comprehensive laws to combat money laundering and terrorist financing were introduced,” says RAHB President, Ann Cosens. “Real estate agents were required to report only suspicious transactions or transactions involving more than $10,000 in cash.”

These new regulations are part of federal legislation (Bill C-25) passed in 2007 that requires a number of industries, including real estate, to do more to help stop money laundering and terrorist financing. The regulations are enforced by the federal agency known as the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC.

As part of the new rules, Realtors are required to keep all identification and the receipt of funds report on file for at least five years and provide it to FINTRAC. Realtors are also required to complete a report on the receipt of all funds received during a real estate transaction.

Also, under the new FINTRAC regulations, real estate agents dealing with clients they never meet must also verify identification. The broker office involved can do this with a service agreement with an agent or mandatary in the area where the client is located. The agent or mandatary must then meet the client, verify the identification of the client, and provide the information to the broker office handling the real estate transaction.

To comply with the new regulation, real estate agents will need to get more acquainted with their clients.

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Contact the Jeffrey Team for more information - 416-388-1960

CTV.ca News Staff

New laws that kick in today will trigger major changes to real estate transactions, as part of federal efforts to battle money laundering.

Under the new regulations, Realtors will have to collect personal information from property sellers and buyers, such as their name, address, date of birth and occupation, backed up by identification such as a driver’s licence or passport.

When dealing with foreign buyers, real estate agents in Canada will now have to hire local agents who can vouch for the identity of the buyer.

The agents will be required to hang onto that information for five years and have it available for the Financial Transaction and Reports Analysis Centre of Canada (FINTRAC), if needed. Otherwise, the information will remain confidential.

The centre was established by the federal government in an effort to track suspicious property deals and prevent shady buyers from dumping large amounts of cash into property purchases.

Bill C-25, which was passed in 2007, demands several industries do their part to help put a stop to terrorist financing and money laundering.  It is estimated that nearly 63% of money laundering is done through real estate.

“Real estate agents have had legal obligations under the federal government’s push to prevent criminal activity and terrorism since 2001,” says Calvin Lindberg, president of The Canadian Real Estate Association. “In the first phase of compliance, real estate agents were required to report only suspicious transactions, or transactions involving more than $10,000 in cash,” he said in a news release issued Monday.

Now, real estate agents have to complete a report on the receipts of all funds received during the transaction, not just for $10,000 or more.

If an agent is dealing with the corporation, they must collect corporate documentation and the names of the corporation’s directors.

In cases where only one of the parties involved in the transaction is represented by the agent, identification must still be collected.

“Those buying or selling privately will be asked by the agent representing the other party involved in the transaction to provide proof of identity as well, and that record must be kept by the real estate agent involved in the transaction,” the news release said.

Bob Linney, CREA spokesperson, said there are also ways to keep track of buyers and sellers who choose to complete the transaction without the help of an agent.

“Sales involving private sellers only are not covered by the real estate regulations,” he told CTV.ca. “FINTRAC assumes they will be captured by regulations governing the banking industry now, and in addition by the legal profession when their compliance requirements kick in later.”

The new regulations will be non-negotiable and buyers who are unable or unwilling to provide the required information will not be able to complete property purchases. Additionally, the agent would be required to walk away from the deal or report the buyer to FINTRAC.

In Ontario alone, 47,000 Realtors will be subject to the new rules.

Over the next six months, the government will perform random spot checks on real estate transactions. But once that window closes, agents will face fines, or even jail time, if they fail to comply with the regulations.

The new requirements for Realtors are part of regulatory changes that Finance Minister Jim Flaherty announced in December of last year to strengthen Canada’s anti-money laundering and anti-terrorist financing regulations.

“The new regulations bring Canada’s anti-money laundering and anti-terrorist financing regime in line with the international standards set by the Financial Action Task Force, a G8 created body,” states a news release from FINTRAC.

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Contact the Jeffrey Team for more information - 416-388-1960

Is Your Mortgage Tax Deductible? The Smith Manoeuvre

If you are like most Canadians the answer is NO. The interest you pay on your home mortgage is not tax deductible in Canada. But if you do some smart planning, the interest paid on a mortgage can become tax deductible, even when the mortgage is on your principal residence.

Our American friends already enjoy the luxury of claiming their mortgage interest. So is there a way for you as a Canadian homeowner to make your mortgage interest payments tax deductible? Well, according to Fraser Smith, the author of the best seller book “Is your Mortgage Tax Deductible - The Smith Manoeuvre”, you can.

But before we start to explain how the “Smith Manoeuvre” works let us discuss a couple of background issues:

“Good debt” vs. “bad debt”
When you borrow money to make money, it is an investment. The interest you pay to service that debt can be deducted from your income before you pay your taxes. That’s “good” debt!  On the other side, borrowing money to buy depreciating items (car, television, or to pay for vacations) will always be considered as “bad” debt.

How to convert bad debt to good debt?
The real trick is to convert “bad” debt to “good” debt. The concept of converting your debt from non-tax deductible to deductible debt is gaining popularity in Canada. Many outspoken proponents of the concept believes that every Canadian should be aware of their ability to convert their debt – more specifically, the ability to convert their mortgage into a tax deductible debt.

What is the Smith Manoeuvre?
The Smith Manoeuvre is a financial strategy pioneered by Fraser Smith, a veteran BC-based financial consultant. It is designed to convert the non-tax deductible interest debt of a residential mortgage to the tax deductible debt of an investment loan – generating annual tax deductions.

Most Canadians are unaware of the real cost of their mortgage, or underestimate the amount of interest they would pay on a mortgage and have no idea of the total cost. For example, a $150,000 mortgage at seven per cent paid over a 25-year period would cost the homeowner more than the original mortgage amount ($165,000) just in interest alone. At a 40 per cent tax bracket, the mortgage holder would need to have earned $525,000 to pay off that $150,000 debt. That’s why more and more Canadians are investigating tax-deductibility as an alternative option.

To summarize, the Smith Manoeuvre in a nutshell, is where you borrow against the equity in your home, invest it in income producing entities, and use the tax return to further pay down the mortgage. Repeat until your mortgage is completely paid off, this will leave you with a large portfolio and an investment loan. Your mortgage is now an investment loan, which is tax deductible and hopefully your portfolio is larger than your loan.

As an example, a $200,000 mortgage at seven per cent would cost the homeowner about $1,400 a month. In the first month, roughly $1,150 would go towards interest and $250 towards the principal. According to Smith, To convert that debt to tax deductible borrowings, the homeowner should then take that $250 back out of their home equity and invest it.

By the end of the first year, the homeowner will have re-advanced and invested about $3,100. Borrowing back the money and investing it creates an “investment loan”, the interest on which may now be tax-deductible. This process is repeated year after year.

Although the debt level remains at the original $200,000, more and more of it is being systematically converted to tax-deductible debt. In addition, ever-increasing tax refunds received by the happy homeowner could also be applied against their mortgage, and then re-borrowed and invested. Also, the homeowner could take any non-registered investments and apply those dollars against their mortgage, enabling them to borrow the money back for tax-deductible investing (assuming the costs and potential capital gains triggered by selling the non-registered investment to pay down the mortgage are not prohibitive).

Does this works for you?
It is good to remember that as with any investment program there are risks involved, the program is based on current Canada Revenue Agency (CRA) rulings, which can change over time.

Borrowing to invest is suitable only for investors with higher risk tolerance. You should be fully aware of the risks and benefits associated with investment loans since losses as well as gains may be amplified. The value of your investment will vary and is not necessarily guaranteed, however, you must meet your loan and income tax obligations and repay your loan in full. Any homeowners should consult with their financial advisor. Advisors understand risk tolerance and can assess the appropriateness of the strategy to your specific situation and most importantly, will be able to implement the necessary investment component of the program.

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Contact the Jeffrey Team for more information - 416-388-1960