What is BC Property Transfer Tax - What You Need to Know
Real estate closing costs, like Property Transfer Tax, should be a significant consideration for those looking to purchase property in British Columbia.
With recent amendments to the PTT including tiered taxation and, in some cases, special exemptions, understanding property transfer tax is increasingly important.
To help explain its origin, the tax rates, the exemptions, and more, here’s everything you should know about property transfer tax.
The History of the BC Property Transfer Tax
The B.C. Property Transfer Tax was introduced by premier Bill Vander Zalm in 1987, more than 30 years ago.
Originally meant to tax speculation and the wealthy, the tax was first calculated at 1% of the first $200,000, and 2% of the balance of a property’s fair market value.
At the time of its introduction, of course, homes rarely tipped over $200,000.
Contributing significantly to provincial revenue streams, the tax helps finance essential services like health care and education. While initially meant to be temporary, recent amendments to the tax prove it’s unlikely to disappear anytime soon.
What is the Property Transfer Tax?
Generally speaking, property transfer tax impacts those acquiring (often buying) rather than disposing of real estate. The tax itself is based on the sales price (fair market value) of the property and is paid at the time of closing.
The Government of British Columbia’s Website states “When you purchase or gain an interest in property that is registered at the Land Title Office, you’re responsible for paying property transfer tax and filing a property transfer tax return.”
While it’s common for Buyers to pay the property transfer tax, it’s important to note that those ‘gaining an interest’ in a property are likely to owe property transfer tax too.
What Does It Mean to Gain An Interest in a Property?
Imagine you purchase a property with your name being the only one that’s listed on the title. At a later date, you wish to add your family member’s name to the title of the property as a 50% stakeholder. As your family member is ‘gaining an interest’ in a property, though it’s not necessarily ‘sold’ to them per se, they may be subject to 50% property transfer tax.
Property Transfer Tax - Tax Rates
The tax payable depends primarily on the sales price of the property.
The tax rates below come from the Government of British Columbia’s website:
- 1% on the first $200,000
- 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000.
- 3% on the portion of the fair market value greater than $2,000,000 and
- If the property is residential, a further 2% (making it 5%) on the portion of the fair market value greater than $3,000,000.
If the property is classified as residential and farm or is residential mixed class (such as residential and commercial), you pay the further 2% tax on only the residential portion of the property.
Here are two examples:
A person purchasing a property valued at $850,000 would pay $15,000 ($2,000 + $13,000).
A person purchasing a property valued at $2,500,000 would pay $53,000 ($2,000 + $36,000 + $15,000) .
What is the Property’s Fair Market Value?
The fair market value is the property price that would be paid by a willing purchaser to a willing seller in an open market.
In many cases, the fair market value of a property is based on the sale price of the property being sold. In this case, prospective buyers have the opportunity to make an offer on the property, so it’s assumed that an agreed price is determined by the open market.
In some cases though, a person gains an interest in a property without the property necessarily being advertised on the open market - like the example described previously. To determine fair market value in this case, the valuation provided by BC Assessment may be used, or the value determined through an independent appraisal.
Potential Exemptions to Property Transfer Tax
Two exemptions exist in regards to Property Transfer Tax - those meet the criteria for either the First Time Home Buyers’ Program or the Newly Built Home Exemption.
The First Time Home Buyer’s Program
Those who meet the criteria for the First Time Home Buyers’ Program might qualify for a full or partial exemption from Property Transfer Tax.
In its most simplistic sense, First Time Buyers must:
- Be a Canadian citizen or permanent resident
- Have lived in British Columbia for 12 consecutive months before the date you registered the property.
- Have never owned an interest in a principal residence anywhere in the world
- Have never received a first time home buyers’ exemption or refund
The property must:
- Be located in B.C.
- Be used as your principal residence.
- Have a fair market value of $500,000 or less.
First-time buyers of properties less than $500,000 may qualify for 100% exemption from Property Transfer Tax. Properties valued $500,000 to $525,000 may receive partial exemptions, and those properties over $525,000 are not offered an exemption.
You might wonder though, what happens if a property is purchased by two people, where only one meets the criteria for the First Time Home Buyers’ Program?
In this case, the First Time Home Buyer would receive their entitled exemption based on their percent of the interest in the property.
In other words, if Susan (for example) is registered as having 99% interest in a property and Linda has 1%. Susan would receive a 99% exemption from property transfer tax if she meets the criteria under the First Time Home Buyers Program.
And, if Susan had 40% interest and Linda has 60%. 40% of the tax would be exempt for Susan so long as she met the criteria of the First Time Home Buyers’ Program.
To determine the amount of your exemption, use this guide.
Newly Built Home Exemption
Those who purchase a newly built home might qualify for full or partial exemptions to property transfer tax too.
There are a multitude of definitions of newly built homes, some of which include:
- A house constructed on a parcel of vacant land
- A new apartment in a newly built condominium building
To qualify, you must be:
- An individual
- A Canadian citizen or permanent resident
The property must:
- Be in B.C.
- Only be used as your principal residence.
- Have a fair market value of $750,000 or less.
- Be 0.5 hectares or smaller
Newly built properties between $750,000 and $800,000 might qualify for a partial exemption.
Use this guide to determine the potential exemption amount for your newly built home.
Foreign Buyer Tax
As foreign buyers were seen to inflate British Columbia’s real estate market, a Foreign-Buyer Tax was subsequently introduced.
Foreign Buyers who purchase in specific regions of B.C. are not only faced with Property Transfer Tax but an additional Foreign Buyer Tax.
Those who are foreign nationals, foreign corporations or a taxable trustee must pay the additional property transfer tax (foreign buyer tax) based on their proportionate share of a ‘residential property transfer.’
Properties registered after February 21, 2018, and which exist in the following areas are subject to foreign tax of 20% of the fair market value and is in addition to property transfer tax.
The following locations in B.C. are subject to foreign buyer tax:
- Capital Regional District
- Fraser Valley Regional District
- Metro Vancouver Regional District
- Regional District of Central Okanagan
- Regional District of Nanaimo
Jill, who is a foreign buyer purchases a $500,000 house in Kelowna B.C. As Jill is subject to the property transfer tax of 1% on the first $200,000 and 2% of the balance of the fair market value, plus a 20% foreign buyer tax, she will owe $108,000:
- $8,000 in property transfer tax.
- Plus, $100,000 in foreign buyer tax.
Other Real Estate Related Taxes
Taxes have a significant impact on property purchasing decisions. As such it's crucial to liaise with professionals like accountants, lawyers, and Realtors who can help outline and explain potential applicable real estate related taxes.
Beyond property transfer tax and foreign buyer tax, buyers should investigate the potential implications of other taxes like annual property taxes, GST, vacancy taxes, speculation taxes and more.
The Bottom Line
Property Transfer Tax isn’t something you want to be surprised by at the time of closing. While you might be inclined to try and calculate your tax bill or to make assumptions about your ability to qualify for exemptions, it’s always best to speak with a professional accountant. Accountants, after all, are up-to-speed with recent tax changes and will be able to tell you exactly how property transfer tax will impact you.
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