FINTRAC – WHAT IT MEANS WHEN PURCHASING A COMMERCIAL PROPERTY

“The terrorist attacks that took place on September 11th, 2001, changed everything.”

A familiar refrain that has come to ring true as many changes enacted since 9-11 have impacted our daily lives.  A well-known example is the need for Canadians entering the United States to have a passport; a lesser-known example is Fintrac – legislation enacted by the Federal government to track terrorist financing and money laundering. You will see the effects of this particular legislation when you sell or purchase commercial property.

The basics of Fintrac require both the buyer and seller involved in a commercial real estate transaction to provide at least two pieces of identification, such as a passport, driver’s license or birth certificate. If the buyer or seller happens to be a company, articles of incorporation and other documents linking individuals to the company will be required.

That may not sound too intrusive, but recently, during a commercial real estate purchase for my own portfolio, I discovered the rules have become much more stringent. Comparing this recent transaction to one completed 10 years ago, the Fintrac microscope focused on commercial deals has increased from 10x magnification to 100x, making it infinitely more difficult to complete the transaction.

Like most other real estate deals, this recent transaction was financed using First National Finance (FNF) and the mortgage was insured with CMHC. Through the application process and right up until the day of closing, my partners and I had to provide FNF with a plethora of documents. Along with the typical documentation mentioned above, we also had to provide proof of equity; this is where things became labourious.

Each of the partners involved in the transaction not only had to provide three-months worth of bank statements, but also any supporting documentation for large deposits depicting the nature of those deposits. For instance, one of the partners had recently received money from an inheritance and was required to submit a final copy of the will as evidence of this.

With the help of our accountant and lawyer, we set up a corporate structure for the purchase where a new company was formed from three holding companies, each owned by one of the partners. Each partner would personally loan money to one of the three holding companies; the holding companies would then fund, and own one-third, of the new company, which was formed to hold the purchased building.  As such, each of the partners had to provide FNF with specific bank statements showing the movement of funds throughout this structure.

In the end, acquiring the required documentation is not as difficult as the process. A real estate agent with little experience or knowledge in commercial deals can easily grow frustrated with the seemingly incessant calls and emails from FNF searching for more and more documentation.

If you are considering a commercial property purchase, I encourage you to speak with an M Commercial representative. Our extensive experience and knowledge can save you a lot of headaches down the road.

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