On July 25, 2016, the B.C. government announced that it is implementing a new property transfer tax applicable to foreign buyers of residential properties. Here are the top 5 things you need to know about the new tax:
1. What properties are affected?
The new tax applies to purchases of residential properties in the Greater Vancouver Regional District, which includes: Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley City and Township, Lion's Bay, Maple Ridge, New Westminster, North Vancouver City and District, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, White Rock and Electoral Area A.
Residential properties located on Tsawwassen First Nation lands are exempt, as are non-residential properties, wherever located. For mixed-use properties, only the portion of the property that is residential property will be subject to the new tax.
2. Who has to pay the new tax?
Like the current property transfer tax, the additional tax is payable by the purchaser of a taxable property. The new tax applies to "foreign entities", which include:
- individuals who are neither Canadian citizens nor permanent residents;
- any corporation that is not incorporated in Canada; and
- corporations that are incorporated in Canada but are controlled by a foreign national or other foreign entity, unless listed on a Canadian stock exchange.
If a Canadian national or entity purchases a taxable property together with a foreign entity, the new tax will only be payable on the portion of the property acquired by the foreign entity. However, it is important to note that each purchaser is jointly and severally liable for the additional tax, even if the other purchasers are Canadians or permanent residents.
The new tax also applies to trusts involved in taxable transactions if a trustee or beneficiary of the trust is a foreign national or other foreign entity. However, mutual fund trusts, real estate investments trusts, and specified investment flow-through trusts are exempt.
3. How much tax will be payable?
The additional property transfer tax rate is 15% of the fair market value of property purchased by a foreign buyer. The new tax is payable in addition to the current property transfer tax of 1% on the portion of the fair market value under $200,000, 2% on the portion between $200,000 and $2,000,000, and 3% on any amount over $2,000,000.
This means that on a property valued at $1.5 million, a foreign buyer will pay the current property transfer tax in the amount of $28,000.00, plus the new property transfer tax in the amount of $225,000.00, for a total of $253,000.00.
4. When does the new tax come into effect?
The B.C. government has announced that the new tax will apply to property transfers registered in the Land Title Office on or after August 2, 2016. The new tax will apply even if the contract of purchase and sale for the property was signed before August 2, 2016.
Foreign buyers who have entered into a purchase contract closing on or after August 2, 2016 should make immediate arrangements to ensure that sufficient funds are available on the closing date to cover the additional property transfer tax. Failure to complete the transaction due to insufficient funds may result in the loss of any deposit paid to the seller and other potential damages.
5. Do the usual property transfer tax exemptions apply to the new tax?
No. Certain transfers of real property are generally exempt from the current property transfer tax. These include: transfers between close family members, transfers resulting from corporate amalgamations, and transfers to surviving joint tenants. However, the new 15% additional property transfer tax will apply to these types of transfers. The new tax will also apply when a foreign entity, including a foreign national, becomes a trustee of an existing trust that holds real property. The absence of traditional exemptions may have potentially costly implications on estate planning and certain corporate transactions involving foreign nationals and foreign entities.
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.