The British Columbia government presented its 2016 budget to legislature on February 16, 2016. The budget includes a number of changes to the British Columbia Property Transfer Tax (“PTT”) regime. Since its enactment in 1987, the PTT has changed little over the years. In this fiscal year the PTT is expected to bring in $1.5 billion in taxes.
Subject to a few exemptions the PTT applies to any “transfer” of title to real estate not just “purchase and sales” transactions. Until now the tax rate has been 1% on the first $200,000 of value and 2% for any amount over $200,000. In the new budget the basic rates will remain the same but the 2% rate now applies for values up to $2 million and 3% for all value thereafter.
Little noted in the flurry of commentary is that this increase of one percentage point is, in fact, a 50% increase in the rate of tax on transfers over $2 million. It is also interesting that almost all comments on the new PTT relate to the current hot Vancouver residential real estate market. Absent in the discussion is the impact this will have on commercial property transactions which contribute a substantial portion of the PTT paid.
As well as the new 3% rate on transactions over $2 million the BC government has created an exemption in payment of PTT on purchases of newly built residences valued under $750,000. This Newly Built Exemption is available only to Canadian Citizens or Permanent Residents and the property must be occupied by the purchasers as their principal residence for a period of one year after purchase. The property itself must be new and never occupied as a residence. Interestingly the Newly Built Exemption applies not only to detached single family residences but also condominiums. Furthermore, the Newly Built Exemption is not limited to first time home buyers.
The PTT changes were effective immediately with no transition period for contracts signed and in force prior to February 17, 2016. Thus buyers with binding contracts in the over-$2 million category must now come up with payment for a 3% tax while they may have initially only budgeted for 2%. Lucky buyers who had existing contracts for less than $750,000 are now entitled to the Newly Built Exemption.
In addition to the changes to the tax rates and exemptions the budget amendments create new disclosure requirements. The PTT tax return will be amended and require buyers to disclose their citizenship, and also whether or not a transferee is a “bare trustee”. A “bare trustee” is a transferee who takes title to property but as agent or nominee for other(s). Under the new disclosure requirements the identity of the true owners of the property must be reported, and in turn the particulars of their citizenship must also be disclosed. At the moment there does not seem to be any consequences flowing from these disclosure requirements. The government is ostensibly only “gathering information”. Presumably this could open the doors to future taxes or tax differentials. For example the Newly Built Exemption only applies to Canadian Citizens and Permanent Residents. Could foreign citizens be singled out for special PTT treatment in the future?
James D. Baird has practiced real estate law for over 30 years, representing clients, vendors, purchasers, lenders and developers on all aspects of their transactions and projects. The legislation discussed in this article can be found here.
Tags: Article, James D. Baird, Real Estate, Tax, Commercial, Residential