On February 16, 2016, B.C. Finance Minister Mike De Jong delivered the B.C. budget for the 2016/2017 fiscal year starting April 1.
Many commentators have surmised that Premier Christy Clark responded to intense public pressure to address the perception that Metro Vancouver has a housing affordability crisis, with a budget that offers a tax break on the acquisition of new homes and the commitment to start collecting data on foreign buyers. However, little has been written on the implications of the budget on commercial real estate transactions in B.C.
Effective February 17, 2016, property transfer tax has been increased from 2% to 3% on that portion of a property’s value which exceeds $2 million. Thus, the bulk of commercial real estate acquisitions will be affected by the increase, where the value of the purchased property is often significantly greater than $2 million.
By way of example, the property transfer tax payable by a purchaser on the transfer of a commercial property valued at $10 million prior to February 17 would have been $198,000. The same transfer of commercial property is now subject to payment by the purchaser of property transfer tax of $278,000. This is a substantial difference.
What is even more concerning for stakeholders and industry participants is that the increase was implemented with virtually no prior consultation or warning, and currently with no “grandfathering” exemption for properties currently the subject of an agreement of purchase and sale. Essentially, overnight, purchasers under existing transactions are required to come up with substantially more funds in order to complete their purchases, which they would not have factored in to their calculations when determining whether to acquire the property.
In addition, effective Spring 2016, the names, addresses and citizenship of all settlors and beneficiaries of bare trustees (including directors of corporate settlors and beneficiaries) are to be disclosed by the transferee upon transfer to any bare trustee, and the disclosed data will be shared with CRA under the existing information exchange agreement between British Columbia and Canada.