The NDP government in B.C. handed down its first full budget on February 20, 2018 and there were a number of initiatives that will affect the cost of acquisition and disposition of real property in B.C. Most of these initiatives are described in the Government’s 30-Point Plan for a Fairer Housing Market, which will not only affect residential property, but may have a broader effect on all real property in the province.
The government laid out the following initiatives that will affect real property transactions in B.C.:
1. TAXING SPECULATORS
Non-residents who do not pay income tax in B.C. will be subject to a speculator tax beginning in the fall of 2018. The tax is stated to be focused on residential property and will apply to those properties that are located in Metro Vancouver, Fraser Valley, Capital Regional District, and Nanaimo, Kelowna and West Kelowna. Principal residences and long-term rental properties will be exempt. The rate of the tax calculated on market value will be 0.5 per cent in 2018 and two per cent in 2019.
2. INCREASING THE FOREIGN BUYERS TAX
The tax introduced by the prior Liberal government will be increased to 20 per cent of the market value and expanded to include residential properties in the Fraser Valley, Capital Regional District, Nanaimo and Central Okanagan (Kelowna and West Kelowna).
3. INCREASING SCHOOL TAX RATE ON HOMES OVER C$3-MILLION
Starting in 2019, school tax assessments on residential properties assessed over C$3-million will be increased on the market value above the C$3-million threshold. The rate will be 0.2 per cent on the assessed value between C$3-million and C$4-million and 0.4 per cent on the assessed value above C$4-million.
4. INCREASING PROPERTY TRANSFER TAX RATE
The property transfer tax rates for conveyance of properties in B.C. will increase for residential properties over C$3-million. The new tax levels, effective February 21, 2018, are:
- One per cent on the first C$200,000 of market value
- Two per cent on the market value between C$200,000 and C$2-million
- Three per cent on the market value above C$2-million
- Five per cent on the market value above C$3-million for residential properties (applicable to the residential portion only on mixed-use properties).
5. PRE-SALE CONDO ASSIGNMENT DATABASE
The province will create a database to track assignments of condominium pre-sales. Developers will be required to collect and report information on assignments and then share them with tax authorities to apply current taxes and allow for “new taxation models in the future”.
6. BENEFICIAL OWNERSHIP DATABASE
The government also announced that it will require additional information on property transfer tax forms that will require disclosure of details about trusts and beneficial ownership that is not recorded in the land title system. The Land Title and Survey Authority, responsible for the administration of registered titles in B.C., will also administer a beneficial ownership registry, which will be publicly available and shared with tax authorities. In addition, legislation is proposed to require corporations in B.C. to keep accurate information about beneficial ownership that will be accessible to tax authorities.
7. PROPERTY TRANSFER TAX ASSESSMENT POWERS
B.C. will increase the limitation period for review and re-assessment of property transactions to six years, introduce administrative penalties for non-compliance with the Property Transfer Tax Act and regulations and extend the general anti-avoidance rule to all transactions (not just the current application to the foreign buyers tax). It appears that the government will also begin enforcing administrative penalties for purposely reporting the transfer tax incorrectly or with misleading information, up to double the tax amount or a fine of C$200,000 for corporations. The consequence of this expanded application may be intended to apply to beneficial transfers or be a preparatory step to express taxation of beneficial transfers.
Although the tax initiatives in the B.C. budget appear to be focused on residential properties, owners and developers should be cautious because as with the foreign buyers tax in B.C., the classification of B.C. Assessment will determine whether a property is residential or not, and there are several types of “commercial” properties that are assessed as residential, such as elder care homes, co-operative developments and farms. These properties may be caught by the new tax initiatives.
The combination of the tracking of condo pre-sale assignments, beneficial ownership registry and extension of the general anti-avoidance rule in the Property Transfer Tax Act to all transactions appears to be preparatory for the taxation of beneficial transfers. Currently, the Property Transfer Tax Act captures a beneficial, unregistered transfer as a “taxable transaction”, but the tax is not payable until there is an application for registration. That step of registration is not defined in the statute and therefore, the institution of the beneficial ownership registry and subsequent registration of a change of beneficial ownership may trigger the statutory requirement for payment of the tax, which has not existed previously since beneficial transfers were not registrable in the B.C. land title system.