Hello everyone, this is Paul Choi from the Juris Notary office. In this column, I would like to discuss in more detail about what a foreign buyer needs to consider when purchasing and selling a property in BC. I am providing a general information and certain parts may not apply or may be different for your individual situation. Please call our office at 604-416-0211 for consultation on your specific case.

As most of you may know, there have been many changes to the law surrounding foreign buyers purchasing properties in BC. It is very important to clarify from the very beginning that the additional PTT tax is only applicable to residential properties or residential portion of a property. Therefore, if you are buying a commercial property or farm that does not have any residential portion, then the additional PTT is not applicable. However, Capital Gains Tax may still be applicable.

2 main tax implications that I will talk about will be Property Transfer Tax and Capital Gains tax. I will not be discussing or giving an accounting advice but simply explain the transactional process that you may go through that is different due to your foreign national status.

Property Transfer Tax (PTT) – Additional Tax

As of Feb 21, 2018, the PTT additional tax went up to 20% and the area was expanded to include the following areas:

   Capital Regional District

   Fraser Valley Regional District

   Greater Vancouver Regional District

   Regional District of Central Okanagan

   Regional District of Nanaimo

The additional property transfer tax doesn’t apply to properties located on Tsawwassen First Nation lands.

To see if your area is included and for exact areas that are affected, please see this link.

It is also important to remember that you have to pay additional PTT on top of the basic PTT; which means, in total, you may have to pay roughly 21-25%, depending on the value of the property.

In practice, not much else needs to be done at the time of your residential property purchase, as your notary or lawyer acting for you will file the appropriate paperwork with the government.

Of course, the exemption for PNP work permit holders still applies to the new additional tax law. It needs to be emphasized that only those of PNP holders are eligible for the exemption and does not apply to any other work permit holders.

Also, refunds may be available for those who get permanent residency status within a year of registration and apply for the rebate within 6 months. The refund request form can be downloaded here or you can contact my office for assistance.

Capital Gains Tax

A capital gain is the gain of profit resulting from the sale of a property, which includes real estate properties. The capital gain is calculated by deducting the original cost of the asset from the proceeds received on the sale of the asset. If you are a resident of Canada as defined by the Income Tax Act and have used the property as your principal residence, any capital gains may be exempted from being taxed. If you are a non-resident, you will have to pay tax on any capital gains. Now the confusion comes often by what is deemed to be a non-resident as defined in the Income Tax Act, as this is different from what typical person may think as it related to Immigration and Refugee Protection Act, where the concern is just your legal immigration status, such as permanent residency or Canadian citizenship.

Canada Revenue Agency (CRA) considers multiple factors to determine your residency status for tax purposes and this is regardless of whether you are a permanent resident or Canadian citizen. CRA may consider you as a non-resident of Canada for tax purposes if one of the following situations applies:

  • you did not have significant residential ties in Canada and you lived outside Canada throughout the year, except if you were a deemed resident of Canada. For example, you could be a deemed resident of Canada if you were an employee of the Government of Canada posted abroad. For more information, go to cra.gc.ca/international;
  • you did not have significant residential ties in Canada and you stayed in Canada for less than 183 days in the year. Any day or part of a day spent in Canada counts as a day. If you lived in the United States and commuted to work in Canada, do not include commuting days in the calculation; or
  • you were deemed not to be resident in Canada under the Income Tax Act because of the provisions of a tax treaty Canada has with another country.

Residential ties in Canada may include:

  • a home in Canada;
  • a spouse or common-law partner (see the definition in your tax guide) and dependants who stayed in Canada;
  • personal property, such as a car or furniture in Canada; and
  • social ties in Canada.

Other ties that may be relevant include a Canadian driver’s license, Canadian bank accounts or credit cards, and health insurance with a Canadian province or territory.

If you are unsure of your status, you can complete Form NR74 and file it directly or via an accountant.

For exact calculation and the filing procedure with the CRA, please consult an accountant professional.

Typically in the practical sense, whether you are resident or non-resident may be clear and you would have indicated that on the contract of purchase and sale that you signed with your realtor. Once the file comes to a notary or lawyer to handle the legal transfer of the property, the legal representative has to make a reasonable inquiry into residency status of the seller and this is usually done by way of a statutory declaration.

If you are a non-resident, then your legal representative would be obligated to:

– if the property is a personal use property, to hold in trust 25% of the gross purchase price or

-if the property was income producing, to hold in trust 25% of the land value and 50% of the improvement value as pro-rated from current assessed values to the actual gross purchase price until your tax is assessed, paid and what is called a Clearance Certificate by CRA is issued.

This is important, as depending on how much you still owe on your mortgage, it could mean that you may even have to bring in more money to your legal representative to hold until CRA issues your Clearance Certificate, as money left over from the sale after paying off your mortgage is less than 25% of the gross sale amount. Furthermore, if you are planning to purchase another property soon after selling a property and did not anticipate 25% of your sale proceeds being held for at least couple of months, you may have a budget issue. For this reason, it is important to start talking to your accountant and legal professionals as soon as possible as a non-resident.

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.