On July 28, 2016, the BC Government passed legislation to implement changes to the Property Transfer Tax Act. These changes will apply an additional 15% tax on purchases by foreigners of residential property in the Greater Vancouver Regional District (GVRD), excluding Tsawwassen First Nation lands.
Transfers subject to the tax
All registrations at the Land Title Office that occur after August 1, 2016, will be subject to the tax. There is no exception for pre-existing contracts and therefore, all contracts, regardless of when they were entered into, will be subject to the tax.
The tax will apply to foreign nationals, foreign corporations and taxable trustees, which include:
- Individuals who are not citizens or permanent residents of Canada;
- Corporations that are not incorporated in Canada;
- Canadian corporations controlled by foreign nationals or foreign corporations (other than corporations listed on a Canadian stock exchange); and
- Any trust which has a foreign entity trustee or foreign entity beneficiary.
The tax will also apply where a foreign individual or foreign corporation holds a beneficial interest in the residential property immediately after the registration at the Land Title Office.
The new legislation is broad and captures transactions that are beyond the intended scope of the legislation. For example, where one of four beneficiaries is a foreign individual, the trustee of the trust will be considered a taxable trustee, and the entire transaction will be subject to the tax instead of limiting the tax to 25 percent of the transaction.
There are also anti-avoidance provisions in the new legislation, which have the ability to recharacterize a transaction structured to avoid the application of the tax. These provisions will apply where the primary purpose of a transaction or series of transactions is to avoid the tax.
Rates and penalties
The 15% tax is in addition to the property transfer tax already payable on a transaction: at the top end, this will mean an 18% tax on the portion of the purchase price over CA$2 million. For example, if a foreign national purchases a home in the GVRD for CA$3 million, the tax rate will be 16% on the first CA$200,000, 17% on the amount up to CA$2 million and 18% on the remaining CA$1 million, for a total tax of CA$518,000.
There are also stiff penalties that may apply for non-compliance: a penalty of up to CA$200,000 for corporations and a penalty of up to CA$100,000 for individuals, in addition to potential jail time.
Exemptions not available
Transactions which are typically exempt from the property transfer tax (such as transfers between spouses and close family members, transfers to surviving joint tenants and transfers on the amalgamation of corporations), will be subject to the 15% tax.
The tax will apply to all transfers of residential real estate in the GVRD, 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.
If the property being transferred is mixed-use property or farmland, the tax will apply only to the residential portion of the property.