As discussed in our earlier article: Newly Introduced 15% Property Transfer Tax In Greater Vancouver, BC we mentioned that property transfers involving foreign entities would be subject to an additional 15% property transfer tax. In response to this previous article we have had many clients inquiring about situations in which they may be exempted from property transfer tax altogether.
In this article we will be discussing the various situations that are exempted from the basic property transfer tax. Please note that these options are only available to Canadian entities.
British Columbia Property Transfer Tax Exemptions
Transfer of a Principal Residence to a Related Individual
If a land is equal to or less than 0.5 hectares (1.24 acres), and any improvements carried out on the premises are all residential as per British Columbia (BC) assessment, and either the transferor or transferee used the constructed property as home to reside, along with three of their families, the property is considered and a ‘principal residence’.
If such a property is transferred to a related individual, i.e. spouse/domestic partner, children/step children, grand-children excluding uncles and aunts, the transfer is not subject to the basic property transfer tax of 1% to 3%.
Transfer of a Recreational Property to a Related Individual
A property is considered to be a recreational residence if the transferee used the property for recreational purpose on a seasonal basis, the land is equal to or less than 5 hectares and valued at $275,000 or lesser in the market, and last but not the least considered a ‘residence’ as per BC assessment. Transfer of such a property by a person to a related person is also exempted from property transfer tax.
Property Transfers Resulting from a Marriage Breakdown
When a property is transferred to a spouse or former spouse, including domestic partner, or common lawful-partner for a minimum of 2 years period, because of a legal separation agreement or by an order from a law court. The transfer is exempted from property transfer tax. In order to qualify, the spouse must also be a Canadian citizen or a permanent resident as defined in the Immigration and Refugee Protection Act (Canada). However, the exemption does not apply if the property is transferred to a corporation or a third party.
Transfer of a Family Farm Property within Individuals or involving Family Farm Corporations
A family farm is farm land that is owned and used for farming by the transferor or his/her immediate family or corporation owned by them. The transfer of property can be direct or through trusts and estates.
Property Transfers to Registered Charities
A transfer of property to a registered charity qualifies for exemption, provided that the charity meets the definition of a registered charity under section 248(1) of the Income Tax Act (Canada), and the property will be used for a charitable purpose.
Transfer of A Newly Built Home
When a newly built home is purchased either the property transfer tax (PTT) is reduced or completely eliminated. As per the property transfer tax authority, a newly built home could be a newly constructed house on a vacant land or a new construction sold to the purchaser, an apartment in a condominium building, an already constructed house that is removed from one parcel of land and affixed to another parcel of vacant, provided it has not been occupied until sale and other similar situations. Taxpayers may claim a refund in case the property transfer tax was paid while purchasing the vacant land.
Transfer to Correct a Conveyance Error
A conveyance error generally occurs at the time of registration of a title at the land title office. Common qualifying conveyance errors could be a wrong property being transferred, transfer made in the wrong name, wrong number were mentioned for the parcel of land or omitted, and wrongful share percentage of ownerships. To correct a conveyance error on a title, the individual needs to file a transfer to change the title back to the immediate previous state of registration, and a transfer to change the title as the purchaser(s) had originally intended (correcting conveyance).
Property Transfer Due to Bankruptcy
If a property title transfer occurs due to declared bankruptcy, then the property transfer tax is exempted; provided the transfer is made to a trustee, or from the trustee back to the bankrupt or their spouse or former spouse, and the property was their principal residence.
Transfers to Change a Tenancy in Common to a Joint Tenancy or Vice-Versa or to a Survivor of a Joint Tenancy
If there is a change in tenancy title from tenancy in common to a joint tenancy or vice-versa, or if the transfer is made to the survivor(s) of a joint tenancy due to the death of a joint tenant, the situation qualifies for property transfer tax exemption, provided: the individuals involved before and after the transfer are same and there is no change in share of ownership.
Transfers Involving an Agreement for Sale
An agreement to sale is considered valid for property transfer tax purposes, when the property is owned by the seller, the purchaser would be paying the full market value in installments, and the title/interest would be transferred only when all the installments have been paid.
Transfer of Property under the Veterans’ Land Act (Canada)
When a property is transferred by the director of the Veterans’ Land Act (Canada) to a veteran, or to their spouse or widow/widower, the property transfer is exempted from property transfer tax.
Transfers Where Property is Transferred or Returned to the Province of B.C.
When the property is transferred/returned to the Province of British Columbia because of the death of the owner, or end of a corporation with no one to claim the estate. In some cases, the province may have allowed the particular person or corporate to use the property for particular purpose but on non-fulfillment the provincial government may take back the property, such transfers qualify for PTT exclusion. However, a transfer to anyone other than the original owner is not eligible for the exemption.
Transfer of Property Due to Sub-Division
Certain transfers due to sub-division or to facilitate an amendment to a strata plan under the Strata Property Act qualifies for PTT exemption, provided it is not a pre-planned transfer. In case of transfers due to sub-division, it is recommended that the transferor obtains an advance tax ruling to avoid a tax situation.
These are some of the situations wherein the B.C. property transfer tax is exempted. Other situations, such as transfer due to corporate amalgamation, or a transfer of property from a minor to the trustee/public guardian or vice-versa, are also exempted from property transfer tax.
Canadian individuals should keep in mind that to claim this exemption, the right exemption code must be mentioned on the exemption Form FIN 579S , in order to avoid any delay in the processing of the form or any tax complications.
Taxpayer should be aware these exemptions apply only for the basic property transfer tax, the additional property transfer tax applicable in the case of foreigners may or may not apply depending on the tax situation, therefore it is always good to consult a tax professional when it comes to taxes in order to be fully tax compliant and avoid a tax situation.
AG Tax LLP Can Help
If you wish to discuss further on the above issue, or 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.
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 consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
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