The British Columbia (B.C.) government has decided to take certain additional measures, as a part of the ‘30-Point Plan’, to end tax evasion in real estate industry. Previously, buyers would purchase a property in a trust, have a corporation own shares in that trust, and then sell the shares in that corporation and transfer the beneficial ownership of the property without changing the title, to avoid paying the property transfer tax.   To close the loophole, B.C. property buyers now need to comply with more tax regulations when purchasing property through trusts and corporations.

These B.C. real estate tax rules will apply from September 2018 onward. Individuals buying property in B.C. should be aware of these regulations and the effect on their tax situation.

The following is a brief overview of the tax rules that apply when purchasing a property through a trust or corporation in British Columbia.

 

New Tax Rules Applicable on Purchasing Property Through a Trust or Corporation

 

From September 17, 2018 onward, under the new provincial tax rules, property buyers making a purchase through a corporation or trust will have to report the following information when filing the property transfer tax return.

  • Name of the buyer
  • Their date of birth
  • Citizenship details
  • Contact information, and
  • Tax Identification Numbers (such as: Business Number, Social Insurance Number, etc.)

Note that, both residential and commercial property purchases, will be affected by the new reporting requirements. 

The new rules allow the government to collect data, however,  they do not require payment of the property transfer tax.

Additional Tax Measures under B.C. Government’s 30-Point Plan

Along with the above, the following changes are part of the 30-point plan:

 

For Housing Affordability

 

  • Speculation Tax

    The B.C. provincial government will be introducing a new speculation tax (“Empty house” tax) on property to prevent unnecessary price inflation of homes caused by speculative property buyers. This speculation tax targets both: foreign and domestic speculative property buyers, who buy properties in B.C. simply as an investment to be sold when the price increases. They do not stay in B.C., and therefore do not pay taxes.  The tax will be collected annually at a rate of 0.5% in 2018 before climbing to 2% in 2019. Those who occupy their home, rent out the home or who pay income tax in B.C. would be exempt from the tax.

  • Foreign Buyers’ Tax 

    In 2016, the B.C. government introduced the ‘15% Foreign Buyers Tax’ to discourage foreign buyers from  buying  property in B.C. and encourage purchases by B.C. residents. However, the 15% additional tax did little to discourage speculative foreign buyers. Hence, the foreign buyers tax has been further increased by 5%. Beginning in February, 2018 , the B.C. foreign buyers’ tax increased to 20%.

  • Expansion of the Foreign Buyers Tax

    Earlier the foreign buyers tax applied only to the Vancouver metro region; however, from 2018 onward, this tax would be applicable in areas beyond the Vancouver metro region, covering Capital Regional District, Fraser Valley, Central Okanagan, and Nanaimo Regional District.

  • Increased Property Transfer Tax

    To further benefit the province from the increased property rates and make the affluent property owners pay their fair share of taxes, the property transfer tax on residential properties worth more than CAD $3 million has been raised from 3% to 5%.

  • Increased School Tax Rate

    Furthermore, beginning in 2019, the school tax rate on homes worth more than CAD $3 million will be subject to an additional tax of:

    • 2% on the residential portion assessed between $3 million and $4 million
    • 4% tax rate on the residential portion assessed over $4 million
  • Provincial Sales Tax (PST) and Municipal & Regional District Tax (MRDT) on Sharing Economy Rentals

    With the digital economy growing, Airbnb, VRBO and other rentals are growing. To align the tax system with current times, the government has decided to levy 8% PST and 3% MRDT on online accommodation provided by short stay rental providers, such as: AirBnB.

  • Reviewing & Updating the Homeowners Grant

    Along with the above-mentioned tax changes, the B.C. government is looking forward to updating the Homeowners Grant to provide fairness to renters as well. However, the renter rebate was NOT included in 2018 budget.

 

To Crack Down on Tax Fraud

 

  • Avoid Tax Evasion in Pre-sale Condominium (condo) Re-assignment

    Due to an existing loophole in contract assignments in the condo pre-sale market, many individuals end up selling a condo multiple times before the unit has even been lived in; thus, increasing the price of the unit significantly within a short period with lesser tax impact. To stop this, the B.C. government is setting up a pre-sale condominium assignment database. This database will be used to collect and report comprehensive information about the assignment of pre-sale condo purchases. This information will be shared with federal and provincial tax authorities to ensure that fair share of taxes is collected.

  • End Hidden Ownership

    Ownership through domestic and foreign corporations and trusts mask the actual owner(s) of the property, who is funding the purchase, hence the additional reporting requirement (as mentioned in the beginning of the article). The provincial authority will also maintain a registry of the beneficiaries of properties, which will be shared with the federal and local government bodies to ensure proper and fair tax collection.

  • Enhancing Provincial Auditing & Enforcement Powers

    Last but not the least, the government will be providing the provincial tax authority with more freedom in collecting information of property owners and introduce penalties for non-compliance. The Property Transfer Tax Act will also be amended to increase the assessment period to 6 years.

To increase homeownership, the government has plans to invest in affordable housing, build rental units, student housing units, and homes for the homeless, and women and children, affected by violence.

In the near future, the B.C. government has stated that it intends to bring in more regulation to ensure renters security, and partner with other local bodies to build and preserve affordable housing. Property buyers in B.C. should consult a real estate tax professional for any tax planning measures before proceeding with the property purchase.

 

AG Tax LLP Can Help

If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.

Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.

We can assist with:

  • Canadian Personal and corporate tax returns
  • Cross Border Taxation and Business Planning
  • US 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 tax consultation to discuss your US Canada cross border tax  queries, please contact us at:

  • 604-538-8735 (Greater Vancouver Area, BC)
  • 780-702-2732 (Greater Edmonton Area, AB)

 

Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.