Selling a House With a CRA Lien: Clearing It at Closing in Ontario

Finding a CRA registration on title when you are trying to sell is stressful, especially if you already have a firm agreement of purchase and sale. A debt against the property is a serious issue, and how it affects your sale depends on the facts, so it is worth getting your lawyer involved early.

This article explains in plain language what a CRA registration against land is, how your lawyer fits into a closing, and what you can do early to keep things on track. Every file is different, so the details of your payout and discharge are something to confirm with your real estate lawyer.

What a CRA lien on title actually is

When people say a CRA lien, they usually mean a certificate of amounts owing that CRA has registered. Under section 223 of the Income Tax Act, that certificate is registered in the Federal Court and has the effect of a judgment. It can then be registered against property in a province, which creates a charge on that property.

The certified amount can also include reasonable costs of registration and collection. That means the figure needed to clear the registration may be larger than the original tax debt, so you should ask for an up-to-date payout figure rather than relying on an old notice.

How a buyer's lawyer will treat the registration depends on the facts of your file, so it is worth confirming with your own lawyer.

How your lawyer fits into the closing

How the amount owing is paid and how the registration is removed depends on the facts of your file. Your lawyer will confirm the current process and the steps needed with CRA.

Your lawyer is central to this. On Ontario's electronic land registration system, most transfer of title documents require two different lawyers to sign for completeness. A lawyer also cannot act for both the transferor and the transferee, though a firm of two or more lawyers may act for both if different lawyers represent each party. Only a lawyer can sign for completeness an electronic document that contains compliance-with-law statements.

Closing money also flows through lawyers' trust accounts, which are governed by Law Society By-Law 9. For electronic trust transfers on closing, By-Law 9 requires a Form 9A before the transfer and a Form 9C signed by a person with signing authority. Your lawyer handles these requirements; you mostly need to supply information and sign what is put in front of you.

Who does what

Special cases to know about

• Non-resident sellers: a buyer of property from a non-resident should get a CRA certificate of compliance before releasing funds, because the buyer may become liable for the seller's unpaid tax.
• Proceeds that do not cover the debt: if the sale price after other mortgages and costs is less than the amount owing, how to handle the shortfall depends on your numbers and is worth raising with your lawyer early.
• Several debts: other registrations, mortgages or liens may also be on title, and each has its own payout and discharge process.
• Tax on the sale itself: CRA says all sales of real property, including a principal residence, must be reported, and the principal residence exemption is allowed only if the sale is reported.

What to do next

The earlier your lawyer knows about a CRA registration, the more room there is to sort it out before the closing date. Surprises found in a buyer's title search close to closing are what usually cause delays and stress.

• Gather every CRA notice, letter and statement you have received.
• Order or ask your lawyer for a recent title search so you know exactly what is registered.
• Ask your lawyer or accountant how to get a current payout figure from CRA.
• Tell your lawyer if you are, or might be treated as, a non-resident for tax purposes.
• Talk to an accountant about the tax reporting for the sale.
• Do not wait for the buyer's lawyer to raise it; disclose it early so the closing date can be planned around it.

Frequently asked questions