Canada: New Vancouver-Area Real Estate Taxes

Two taxes have been recently introduced in the Vancouver area, designed to cool the local estate market.

The BC "Foreign Buyer Tax"

Effective August 2, 2016, a transfer tax of 15% of fair market value is payable by "foreign nationals" or "foreign corporations" who acquire "residential property" in the Greater Vancouver Regional District (the "GVRD") (other than the treaty lands of the Tsawwassen First Nation). This additional property transfer tax ("Additional PTT"), frequently referred to by the media as the "Foreign Buyer Tax", is in addition to the pre-existing British Columbia property transfer tax of between 1 and 3%, with the result that a foreign purchaser must pay between a 16% and 18% transfer tax on residential property in the GVRD. The government has the ability to extend the tax to other parts of the Province or increase the rate, up to 20%.

Key takeways:

  • "Residential property" is any property classified by the BC Assessment Authority as "residential", and includes a range of properties with commercial elements, including rental apartment buildings, nursing homes and rest homes. In many instances, property acquired for development will be classified as residential.
  • A "foreign national" is currently any individual who is not a Canadian citizen or permanent resident.
  • As of March 17, 2017, the Province has introduced a limited, one time exemption for foreign nationals who are confirmed under the BC Provincial Nominee Program and purchasing a principal residence. Individual purchasers who have paid the Additional PTT but would have qualified for this exemption at time of purchase may apply for a refund. Individuals who become Canadian citizens within one year of their date of purchase of a principal residence may also apply for a refund, provided they meet certain property use requirements. There are time limits for applying for such refunds.
  • The definition of "foreign corporation" is complex, but essentially is (i) any corporation not incorporated in Canada OR (ii) a Canadian corporation, where shares are not listed on a Canadian exchange, that is "controlled" (defined with reference to the Income Tax Act (Canada)) by any of (A) a foreign national , (B) a corporation not incorporated in Canada or (C) a corporation whose controlling shareholders are foreign nationals or foreign corporations.
  • For trusts, if ANY trustee, or current beneficiary of the trust is a foreign national or foreign corporation at the time property is acquired, the purchase will attract the Additional PTT.
  • A limited partnership purchaser with foreign limited partners may also be required to pay the Additional PTT.
  • Some widely used exemptions from the basic property transfer tax will not apply to exempt the Additional PTT namely:
    • Registration of an amalgamation of corporate entities
    • Replacement/substitution of a registered trustee even if the beneficial ownership of the trust is not changing
    • Transmissions to surviving joint tenants

These key exemptions will still apply with respect to the basic property transfer tax but will not apply with respect to the Additional PTT.

The legislation also introduces an anti-avoidance rule, steep offence penalties and a lengthy time period for reassessment (6 years instead of the 1 year period, for the basic property transfer tax), specific to the Additional PTT.

The legislation did not provide for a transition period or grandfathering, and the tax applies to any transaction registered on or after August 2, 2016. Thus, foreign entities who are currently holding property in the GVRD may face unexpected consequences in land title transactions.

City of Vancouver Vacancy Tax

The City of Vancouver's Vacancy Tax By-Law, enacted on November 16, 2016, imposes a vacancy tax of 1% of assessed value ("Vacancy Tax") on "vacant" residential properties located in Vancouver, unless the property comes within one of the limited exemptions. As with the Additional PTT, "residential property" is any property classified as residential by the BC Assessment Authority. Property is deemed "vacant" if it is not either:

  1. the principal residence of an individual, or
  2. "occupied" by a tenant or subtenant for terms of at least 30 days at time,

for a sufficient portion of a calendar year, as described in the next sentence. If the property is "vacant" for more than 180 days in a calendar year, the tax is triggered. In other words, a residential property must be a principal residence or tenanted for just over half the year, or it will be deemed "vacant". Vancouver has not published guidance on what it will consider "occupied" by a tenant.

The tax will be payable annually in early April commencing in 2018, based on the use of the property in the preceding calendar year. Accordingly, it is critical for owners of property in Vancouver that may currently be considered vacant to be aware of this new By-Law: it is the use of the property in 2017 that will determine whether one must pay the 1% tax in 2018.

Each owner of residential property within Vancouver will be required to complete a "property status declaration form" in the first part of each year, as to the use of the property in the prior calendar year.

Key exemptions under the By-Law are as follows:

  • Renovations/development: all permits have been issued, property needs to be empty for safety, and the owner is carrying out renovations without unnecessary delay.
  • Strata rental restrictions: Where there is a rental restriction, passed prior to November 16, 2016, rentals in the strata corporation are at maximum and the owner is on the wait list to rent out his or her unit.
  • Homes used by owner(s) who only work part of the year in Vancouver, where the home is used by the owner for at least 180 days of the year
  • Property sold in the prior year – i.e., a purchaser who buys in 2017 will be exempt from payment based on the 2017 use.
  • The owner has passed away, and there is not yet a grant of probate.

The exemptions are deliberately limited. The City's stated purpose is to encourage property owners to either live in, rent, develop or sell their properties, rather than hold them for investment, use for nightly or short term AirBnB-type rentals, or in anticipation of some future event. Properties that are not exempt include: bare land that is assessed as residential, vacation homes, property used for nightly rentals, properties that are up for sale or rent without success, and properties in need of renovations.

While there is a two-level appeal process, there is no opportunity for an owner to make a hardship or exception application. The appeal process is strictly limited to whether or not the City has correctly applied the By-Law. The limitation periods for making appeals are very short – less than a month, in most cases.

Owners of "vacant" residential properties in the City may wish to seek advice as to what steps can be taken so that the 2017 use will not trigger the tax in 2018.

It is anticipated that the City of Vancouver will issue further clarification this year regarding the application of the By-Law and/or additional exemptions. As of March 2017, such amendments have not been tabled.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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