On July 25th 2016, the British Columbia government introduced an additional 15% property transfer tax on the fair market value (FVM) of residential property transfers to foreign entities (i.e. foreign nationals (not Canadian citizens or permanent residents), foreign corporations (not incorporated in Canada or if incorporated but the majority control is a foreign entity unless listed on a Canadian Stock Exchange) or taxable trustees (foreign national/corporation trustee/beneficiary)). The 15% property transfer tax for foreign entities is in addition to the existing 1% to 3% property transfer tax which applies to both resident, and non-resident foreign buyers.
The additional 15% property transfer tax is effective from August 2nd, 2016 and will apply to 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.
AG Tax analysts have summarized the property transfer tax, and prepared a brief overview of the newly introduced 15% property transfer tax for foreign buyers. This article should serve as a source of information for a non-resident who is considering buying a house in the Greater Vancouver area. If you are considering buying or selling a property it is highly recommended that you discuss with your realtor or reach out to a tax professional for advice on how this new property transfer tax will affect you.
Overview of B.C.’s current Property Transfer Tax
When an individual purchases a property, gains an additional registered interest in the property or becomes a registered holder of a lease, life estate or foreclosure he/she is required to pay property transfer tax.
The property transfer tax is calculated on the fair market value (FMV) of the concerned property at the time of sale or title change, and the applicable tax rates are as follows:
- 1% on the first CAD$200,000
- 2% on the FMV above CAD $200,000 but below $2,000,000, and
- 3% on the portion of the fair market value greater than $2,000,000.
As an example, if a Canadian resident purchases a property with a FMV of $2,500,000. The tax payable would be $39,500 (1% of $200,000 = 2,000 + 2% of $1,800,000 ($2,000,000-$200,000) = 36,000 + 3% of $50,000 = $1,500).
Exemptions from property transfer tax in B.C.
There are certain situations which qualify for exemptions from the newly enforced property transfer tax. These situations would include if the transfer is of a principal or recreational residence transferred between family members, or the transfer of the property is due to a marriage breakdown. There are also exemptions when dealing with the transfer of a family farm to a family farm corporation or vice-versa, or transfer to a registered charity.
The additional property transfer tax will apply to transactions that are normally exempt from the basic property transfer tax, such as the transfer between related individuals or to a surviving joint tenant, transfer resulting from an amalgamation, and other such situations. However, it does not apply to non-residential properties and trusts that are mutual fund trusts, real estate investment trusts or specified investment flow-through trusts.
Check back soon for our upcoming article on Exemptions from Property Transfer Tax in B.C..
Filing and Paying the Additional Property Transfer Tax
Foreign entities or their legal representatives need to file Form FIN 532, Additional Property Transfer Tax Return at the time the property transfer is registered with the Land Title Office. The basic property transfer tax ranging from 1%-3% should be paid along with the 15% additional tax.
If there are various transferees, each transferee is responsible for their and other’s share of the tax. For example if one transferee fails to pay the basic and additional property transfer tax other transferees, including Canadians, will be held liable for the transferee who fails to pay their share of the tax.
Consequences of Tax Avoidance & Failure To Pay
Every property transfer tax transaction is subject to audit, i.e. every transaction will be reviewed and verified by the responsible authority. This can happen anytime within the 6-year period starting from the date of transfer registration at the Land Title Office.
Canadian citizens would need to provide their Social Insurance Number (SIN) and other identity proofs for verification purpose if they are involved in the transfer. Therefore, caution should be exercised while providing details and filing Form FIN 532, since any errors/discrepancies could lead to an audit.
The additional property transfer tax is covered by anti-avoidance provisions which are expected to be enforced to ensure all foreign entities report and pay the tax as required. If an individual deliberately files Form FIN 532 with misleading information, or tries to elude the additional tax, they could be subject to a penalty of the unpaid tax plus interest and a fine of $100,000 or $200,000 depending on whether it is an individual or corporation and in some cases 2 years imprisonment.
Having said that, the provincial government will be monitoring the records for compliance regarding the additional property transfer tax and follow-up with individuals and corporations who have filed Form FIN 532 with errors. It would be a wise decision to take time in filing the form and pay the taxes within the stipulated period to avoid any unfortunate tax situations. We suggest consulting a tax professional in case of any financial issues/concerns, or to discuss how this tax will affect you.
AG Tax LLP Can Help
If you wish to discuss further on the above issue, have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
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