When planning for one's future, most people do not want to leave their spouse or loved ones with confusing procedures, bills, and expenses upon their death. Adding a spouse or a loved one as a joint tenant to a real estate property is an estate planning technique that is commonly used to simplify this process.
However, if the joint tenant is not a Canadian citizen or permanent resident, they may be inadvertently stuck with a large tax bill when they inherit real estate property in this way.
Generally speaking, when real estate properties are owned in joint tenancy, the entire interest in the property will automatically transfer to the surviving joint tenant when one of the property owners dies.
Not only does this simplify the process required to transfer the property to the surviving owner, but it also has the effect of reducing probate fees that need to be paid by the estate on the real estate property.
However, property owners who are not Canadian citizens or Canadian permanent residents should be aware of the potential foreign tax consequences arising from this method of estate planning.
PROPERTY TRANSFER TAX
Unless a property qualifies for an exemption, whenever real estate is transferred in British Columbia, the transfer is subject to property transfer tax assessed on the fair market value of the property at the time of the transfer.
In most cases, the transfer of real estate to a surviving joint tenant on the death of one of the owners will be exempt from property transfer tax.
ADDITIONAL PROPERTY TRANSFER TAX
In 2016, the B.C. government introduced the Additional Property Transfer Tax, otherwise known as the Foreign Buyers' Tax, under s.2.02 of the Property Transfer Tax Act, R.S.B.C 1996, C. 378.
In addition to regular property transfer tax, transfers of real estate in the following geographical areas to a non-Canadian citizen or non-permanent resident are subject to an additional 20% tax assessed on the fair market value of the property at the time of the transfer:
- Metro Vancouver Regional District
- Capital Regional District
- Fraser Valley Regional District
- Regional District of Central Okanagan
- Regional District of Nanaimo
The Foreign Buyer's Tax applies to transmissions of properties to surviving joint tenants, even though individuals would otherwise be exempt from needing to pay regular property transfer tax on their receipt of the property.
With the introduction of the Foreign Buyer's Tax, this can have unintended and onerous financial consequences on surviving joint tenants, particularly in instances where their intention may be to ultimately sell the property, as they would still need to pay the Foreign Buyer's Tax prior to being able to sell the property to an arm's length purchaser.
Property owners who hold real estate in joint tenancy with non-Canadian citizens or non-permanent residents may wish to reassess their estate plans and, in particular, the method that they hold title to their real estate properties.
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.