On February 16, 2016, Finance Minister Michael De Jong announced the 2016 Provincial Budget. A portion of the Budget calls for amendments to British Columbia’s current property transfer tax regime.
Property transfer tax is a Provincial tax that is imposed on the transfer of legal title to real property. The tax payable is based on the fair market value of the property transferred as of the date of registration, unless the transferee and transferor qualify for one of the limited number of exemptions. The tax is charged at a rate of: 1% on the first $200,000 and 2% on the portion of the fair market value greater than $200,000.
The Budget provides the following changes to this tax regime, effective February 17, 2016:
1) Buyers of newly constructed homes (including condominiums) priced up to $750,000, will be exempt from paying property transfer tax. The exemption will provide up to $13,000 in tax relief to qualified individuals. To qualify, the property must be registered at the Land Title Office and the property owner must be:
- an individual (not a corporation);
- a Canadian citizen or permanent resident of Canada (if the property owner is not a Canadian citizen or permanent resident, but becomes one within 12 months of when the property is registered, the owner may apply for a refund of the tax)
and the property must:
- be located in British Columbia;
- only be used as a principal residence;
- have a fair market value of $750,000 or less; and
- be 1.24 acres or smaller.
Property owners are required to pay the full amount of property transfer tax should the newly constructed property exceed the $750,000 threshold. Property owners may receive a partial exemption for properties valued $750,000 and $800,000, provided that the property is larger than 1.24 acres and has another building on the property other than the principal residence.
2) The rate of property transfer tax has been increased to 3% from 2% on the fair market value of all properties, residential or otherwise, above $2 million. Previously, the Property Transfer Tax Act required tax payable at 2% of the fair market value exceeding $200,000. For example, if on the purchase a home worth $3 million, the property owner will pay: 1% on the first $200,000; 2% on the next $1.8 million; and 3% on the last $1 million.
3) Proposed amendments to the Property Transfer Tax Act will allow the Provincial Government to collect new information from property owners regarding whether or not they are citizens or permanent residents of Canada. Foreign investors will be required to disclose their citizenship and country of residence. The reporting requirement will apply to those purchasing newly constructed homes and continue to apply to first time home buyers. The reporting requirements will not affect buyers of commercial properties. The proposed changes are set to take effect beginning this summer.
4) Finally, the threshold to receive a home owner grant has been raised. The home owner grant reduces the amount of property tax paid on the property owner’s principal residence. The grant threshold has been increased from $1.1 million to $1.2 million for the 2016 tax year. Homes that exceed the threshold may still be eligible for a partial grant. For properties assessed above the threshold, the grant is reduced by $5 for every $1,000 of assessed value in excess of the threshold.