On Feb 20, 2018, the NDP government announced their budget that made significant changes to many aspect of the province, including in the areas of real estate. The changes included property transfer tax and came in effect on Feb 21, 2018 and the Speculation Tax.
This column will focus on the changes to the basic Property Transfer Tax that will affect not just the foreign nationals but everyone in BC. Additional PTT will be discussed in the next column.
There is one detail that I want to discuss before I go into talking about the new changes to the PTT, as it is often a source of confusion among many of my clients. Many clients get property transfer tax and capital gain tax confused.
Property Transfer tax is a provincial tax that is imposed upon registration of a property on to your name; whereas capital gain tax is imposed upon sale of your property, based on the amount of net gain that was made between the amount you bought the property and the amount you sold the property.
I often compare capital gain tax as a GST, where it is a federal tax and the PTT as a PST, as it is a provincial tax. Depending on your specific situation, you may be exempt from both taxes, just one or none of the taxes.
It is important to consult a real estate notary or a real estate lawyer regarding the PTT and consult a Chartered Accountant regarding the capital gain tax.
Previous Basic PTT
Back to the changes to the Basic PTT. Before Feb 21, 2018, PTT rate was set at the following:
1% on the first $200,000,
2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000,
3% on the portion of the fair market value greater than $2,000,000,
New Basic PTT
As of February 21, 2018, the PTT rate added the following:
if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 to make it 5% on fair market value.
So this means if you are planning to buy a residential property that is worth 3 million or more, you will be paying 5% property transfer tax.
The next related question that I get very often is, how is fair market value determined? There are 3 ways that the Property Transfer Taxation branch will consider:
- based on the bonafied purchase price in the open market
PTT branch will consider a transaction as an open market transaction if anyone likely to be interested in the property can make an offer. This means the seller would need to list the property with a realtor or advertise it for sale that can be seen by a general public. But even in this case, the PTT branch can request to verify that it is in fact a transaction is reflective of a fair market value if:
- there was a significant change in value
- the condition of the property changed
So as an example, if the property transfer is not completed within few months, such as new developments, and it is believed that the value of the property has changed significantly due to the contract was entered into it 3 years ago and the value has gone up significantly, the PTT branch could request for verification that it is a current fair market value. This is why if you buy a new development by way of an assignment, your property transfer tax is going to be the gross purchase you paid, not based on the original price that the assignor signed the contract with the developer.
It seems that the PTT branch usually do not make an issue out of delays caused by new developments but it is something that they do have authority to do so.
- based on an assessed value determined by the BC assessment
Given that the BC assessment valuation generally reflects your property’s value as of July 1 of the previous year, this may not be a fair market value either and the PTT branch can request a verification. However, it seems that PTT branch most often will accept a BC assessment value if the transaction did not take place in an open market and this is the most common method to determine the value of a property for a non-open market transactions.
But the current property valuation provided by BC Assessment can’t be used in certain cases, such as when:
changes have been made to the property (e.g. rezoning) since the assessment
market conditions in the area of the property have changed since the assessment
the land is classified as farm land (class 9)
new or additional construction has been completed
- a recent independent appraisal
The third option is almost never used as an appraisal will often produce a higher valuation than BC assessment done by the government and no one wants to pay more tax.
This is the reason why you may still have to pay a full property transfer tax even if you are transferring a property to a family or a friend for free or lesser value than how much it would sell for to a 3rd party.
If you have further questions, please do not hesitate to contact our office and speak to myself or any of my friendly staff.
- This is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.
If you have further questions, please do not hesitate to contact our office at (778-379-8577) and speak to Paul Choi or any of our friendly staff.