Effective August 2, 2016, a new tax of 15% of fair market value is payable by “foreign nationals” or “foreign corporations” who acquire “residential property” in the Greater Vancouver Regional District. This tax is in addition to the current Property Transfer Tax, with the result that a foreign purchaser will be paying between a 16% and 18% transfer tax on residential property. The legislation, surprisingly, does not provide for a transition period or grandfathering, and the tax applies to any transaction registered on or after August 2.
Key issues to be aware of are:
- A “foreign national” is anyone who is not a Canadian citizen or permanent resident.
- The definition of “foreign corporation” is complex, but essentially is: (i) any corporation not incorporated in Canada, OR (ii) a Canadian corporation whose shares are not listed on a Canadian exchange and is “controlled” by any of (A) a foreign national, (B) a corporation not incorporated in Canada, or (C) a corporation whose controlling shareholders are foreign nationals or foreign corporations. “Controlled” is defined with reference to the Income Tax Act (Canada).
- “Residential property” is relatively far reaching, and includes rental apartment buildings, nursing homes and rest homes.
- Three key exemptions from the basic Property Transfer Tax will not apply to exempt the 15% additional tax namely:
- Transmissions to surviving joint tenants;
- Replacement/substitution of a registered Trustee even if the beneficial ownership of the Trust is not changing; and
- Registration of an amalgamation of corporate entities.
These key exemptions will still apply with respect to the basic Property Transfer Tax (of up to 3%) but will not apply with respect to the additional 15%. Transmissions to executors and administrators do not attract any Property Transfer Tax, including the 15% tax. With respect to exempt transfers to a related person of a principal residence, recreational property or family farm, the related person has always had to be a Canadian citizen or permanent resident, but the Property Transfer Tax will now be up to 18% instead of up to 3% where the transferee is not a Canadian citizen or permanent resident.
The legislation also introduces an anti-avoidance rule, steep offence penalties and a lengthy time period for reassessment (six years instead of the one year period, for the basic transfer tax), specific to the 15% additional tax.