Additional Property Transfer Tax

The most significant new real estate tax in the last few years has to be the Additional Property Transfer Tax.

For more information on the traditional Property Transfer Tax, please click on the following link:

http://www.dbmrealestatelaw.com/property-transfer-tax/

On February 20, 2018, the BC NDP Government’s Budget made some changes to the Property Transfer Tax. For more information, please click on the following link:

Recent Changes to the Property Transfer Tax

If you are a Foreign Buyer, you may also have to pay the Additional Property Transfer Tax.

1. What is the Additional Property Transfer Tax

In addition to the property transfer tax, if the purchaser is a foreign national, foreign corporation or taxable trustee, they must pay the additional property transfer tax on their proportionate share of a residential property transfer if the property is within specified areas of B.C.

As part of the BC NDP Government’s recent Budget, if the property transfer is registered on or after February 21, 2018 and is within the following areas, the tax amount is 20% of the fair market value of your proportionate share:

1. Capital Regional District
2. Fraser Valley Regional District
3. Greater Vancouver Regional District
4. Regional District of Central Okanagan
5. Regional District of Nanaimo

The additional property transfer tax doesn’t apply to properties located on Tsawwassen First Nation lands.

Prior to the Budget announcement, if the property transfer was registered on or before February 20, 2018 and was within only the Greater Vancouver Regional District, the tax amount was 15% of the fair market value of your proportionate share.

Note that this change became effective on February 21, 2018. If you entered into a contract of purchase and sale before February 21, 2018 but your Completion Date is on or after February 21, 2018, the new rate will apply.

2. What is a Foreign National?

A person who is not a Canadian citizen or permanent resident of Canada, including a stateless person.

3. What is a Foreign Corporation?

A foreign corporation is a corporation that is one of the following:

1. Not incorporated in Canada, or
2. Is incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation, unless the shares of the corporation are listed on a Canadian stock exchange.
3. Is controlled directly or indirectly by a foreign entity (see section 256 of the Income Tax Act (Canada) for further details)

4. What is a Taxable Trustee?

A taxable trustee is a trustee that is a foreign national or foreign corporation holding title in trust for beneficiaries. The taxable trustee can also be a Canadian citizen holding title in trust for beneficiaries who are foreign nationals or foreign corporations.

6. Exemptions

There are two exemptions to the additional property transfer tax:

A. Generally, if you are exempt from property transfer tax, you are also exempt from the additional property transfer tax. But it is really not that general. The exemption does not apply to the additional property transfer tax in the following situations:

1. A transfer resulting from an amalgamation
2. A transfer to a surviving joint tenant
3. A transfer where the transferee is or becomes a trustee in relation to the property, even if the trust does not change

B. You may not have to pay the additional property transfer tax if you are a confirmed B.C. Provincial Nominee and meet certain criteria. If you are a foreign national individual who receives confirmation under the B.C. Provincial Nominee Program, you do not pay the additional property transfer tax if you claim the exemption.

To qualify for this exemption:

1. You must be a confirmed B.C. Provincial Nominee when the property transfer is registered with the Land Title Office
2. The property must be used as your principal residence
3. The property transfer must be made to an individual

You may claim this exemption only once. If you purchase another property, you must pay the additional property transfer tax. Qualifications for every exemption claimed are reviewed.

Furthermore, the additional property transfer tax doesn’t apply to registration of trusts that are mutual fund trusts, real estate investment trusts or specified investment flow-through trusts.

7. Refunds

You may be eligible for a refund if:

A. You became a permanent resident or Canadian citizen within one year of the date the property transfer was registered with the Land Title Office.

In addition to becoming a permanent resident or Canadian citizen within one year from the date the property transfer was registered with the Land Title Office, to qualify for the refund, you must also have:

1. Used the home as your principal residence
2. Moved into the home within 92 days from the date the property transfer was registered
3. Continued to live in the home as your principal residence for at least one full year after the date the property transfer was registered

If you purchase more than one property as a foreign national and within one year you became a permanent resident of Canada or Canadian citizen, you can only claim the refund once and the refund must be claimed on your principal residence.

You must apply for a refund after the first anniversary of the date the property transfer was registered and within 18 months from the date the property transfer was registered at the Land Title Office.

A Canadian permanent resident card is the preferred proof of permanent residency. The following documents are also acceptable if there is no permanent residency card:

1. Valid Immigrant Visa and Record of Landing (IMM100)
2. Confirmation of Permanent Residence document (IMM5292 or IMM5509) – the confirmation number starts with a T followed by nine digits

Note: Permanent residency requirements differ for income tax purposes. For the additional property transfer tax, you must be a permanent resident of Canada as outlined in the Immigration Act.

B. Tax was paid in error, such as you paid the additional tax on a residential property located outside the specified B.C. areas or you qualified for an exemption at the time of registration but the exemption was never claimed

C. You were confirmed as a B.C. Provincial Nominee and paid the additional property transfer tax between August 2, 2016 and March 17, 2017. The reason for this was because during that specific time, BC Provincial Nominees were not granted an exemption of the Additional Property Transfer Tax.

You may be eligible for a full or partial refund of the additional property transfer tax that you paid between August 2, 2016 to March 17, 2017, if you:

1. Are a foreign national individual
2. Purchased or gained an interest in a residential property in the GVRD
3. Held a nomination certificate or were confirmed under the B.C. Provincial Nominee program on the date the property transfer was registered with the Land Title Office

If you purchased more than one property within that time, you can only claim a refund on your principal residence.

You must apply for a refund within 18 months from the date the property transfer was registered.

8. Transitional Rules

If the property is located in the Capital Regional District, Fraser Valley Regional District, Regional District of Central Okanagan or Nanaimo Regional District and the property transfer is registered on or after February 21, 2018, there are two instances where you don’t have to pay the additional property transfer tax:

A. You don’t have to pay the additional property transfer tax if the registration occurs before or on May 18, 2018 and the property transfer is subject to a written agreement dated on or before February 20, 2018. Otherwise you will have to pay the additional property transfer tax.

Note: If the written agreement is assigned to a foreign entity or taxable trustee on or after February 21, 2018, the additional property transfer tax must be paid.

B. You don’t have to pay the additional property transfer tax and your property can be registered at any time if:

1. The property transfer is subject to a court order dated on or before February 20, 2018
2. The property transfer is subject to an Order Nisi of Foreclosure dated on or before February 20, 2018
3. The property transfer is subject to a separation agreement which was signed on or before February 20, 2018
4. The property transfer is from the personal representative of a deceased’s estate to the beneficiary and the death of the deceased occurred on or before February 20, 2018
5. The property transfer is to a surviving joint tenant when the death of the deceased occurred on or before February 20, 2018

These are very specific exemptions. I am not sure if these exemptions will apply to many people’s situations.

9. I am a Canadian-born citizen. This won’t affect me! Why should I care?

Although the media may portray a foreign national purchaser as being a wealthy person from another part of the world buying expensive real estate in Vancouver with all cash, this Additional Property Transfer Tax has probably affected either yourself or someone you know who is buying property. Some examples:

a. The Vancouverite who fell in love with someone in another country while teaching English. They decide to move to Vancouver together, get married, and want to enter the real estate market. If that significant other is not yet a Permanent Resident or Canadian Citizen at time of the purchase, they will be hit with that Additional Property Transfer Tax.

b. The White Rock resident who met someone from Bellingham via an online dating service. They fall in love, decide to move to White Rock together, get married, and want to enter the real estate market. If that significant other is not yet a Permanent Resident or Canadian Citizen at time of the purchase, they will be hit with that Additional Property Transfer Tax.

c. A married couple of many years bought a home in Surrey together. They owned the property as joint tenants. One spouse is from another country and never got their permanent residence or Canadian citizenship for whatever reason. The Canadian spouse passes away. When the property is transferred to the surviving joint tenant, the surviving spouse is hit with that Additional Property Transfer Tax.

10. My spouse and I are buying a home in Coquitlam together as Joint Tenants. I am a Canadian Citizen but my Spouse is still waiting for their Permanent Residence and will likely not receive it on or before the Completion Date. How is the Additional Property Transfer Tax calculated?

The Spouse would pay the additional property transfer tax on their proportionate share of a residential property transfer if the property is within specified areas of B.C. Their proportionate share is the percentage of interest that they are registering on title with the Land Title Office. As the foreign entity is acquiring a 50% interest in the Coquitlam property, they pay the additional property transfer tax on 50% acquired interest.

If the Spouse becomes a permanent resident or Canadian citizen within one year of the date the property transfer was registered with the Land Title Office (and meets the other criteria – go back to #7), then the Spouse can apply for a refund.

11. I am not a Geography expert. How do I know if the home where I am buying is liable for Additional Property Transfer Tax?

I am not a geography expert either. Although the Provincial Government expanded the areas where the Additional Property Transfer Tax applies, it is not (yet) province-wide.

To make sure whether the additional property transfer tax applies to your municipality or city, check the following link:

https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax/bc-areas

You may also want to call the Property Transfer Tax Department at 1-250-387-0555.

The last thing you want to occur is you purchase a home in a city where you think the additional property transfer tax does not apply, and then realize it actually does apply.

12. Audits

Property Transfer Tax returns can be audited. Audits are routinely conducted to ensure taxes have been paid correctly, and exemptions have been claimed correctly

All property transfers subject to the additional property transfer tax are further reviewed and monitored for compliance. Special anti-avoidance penalties apply to these transactions. Discrepancies on a return lead to an investigation of the transaction.

Anti-avoidance provisions exist and will be enforced to ensure all property purchasers report and pay the correct amount of property transfer tax and/or the additional property transfer tax, including examining circumstances where Canadians, as taxable trustees, hold property in trust for a foreign entity or are trustees where a beneficiary may be a foreign entity.

Failure to pay the tax as required or purposely completing the property transfer tax return or the additional property transfer tax return with incorrect or misleading information may result in a penalty. These penalties may include double the tax, tax plus interest, a fine of $200,000 for corporations or $100,000 for individuals and/or up to two years in prison. The penalties apply to anyone who participates in tax avoidance.

Conclusion

Whoa! That was a lot to process. If you have any questions about this post, please contact Lewis Nguyen at lewis@dbmlaw.ca or 604-937-6373.