Everything You Need to Know about Property Transfer Tax in BC
Closing Costs can be confusing, and it’s important that you know what to expect when you’re home hunting. This blog post goes through everything that you need to know about property transfer tax BC along with how much it is, possible exemptions, and when you have to pay it. Regardless of whether you’re buying your first home or your fifth, this blog post is to make property transfer tax crystal clear.
What is Property Transfer Tax BC?
The Property Transfer Tax (PTT) in British Columbia is a land registration tax paid by a property buyer when a property title is registered at the Land Title and Survey Authority (LTSA). To be clear, sellers do not pay the property transfer tax, rather buyers of the home have to pay as they are gaining an interest in the property upon title registration. (Also referred to as the completion date)
So it is a property tax ,right? Is property transfer tax and property tax the same thing?
NO! Property transfer tax should not be confused with annual property taxes. Annual property taxes are paid yearly for each property you own or have a registered interest in to fund services in your area. The property transfer tax is paid one time when the title is transferred from the seller to the buyer.
Sometimes, people think that the mortgage company has already factored in the property transfer tax to their payment. However, this is not the case. The mortgage company can factor in your annual property taxes to the monthly mortgage payment; however, because the property transfer tax is a one time fee the mortgage companies DO NOT factor this in to the monthly payment.
Please note that when you purchase a home you will have to factor in both the annual property taxes (may be a debit or a credit depending on your adjustment dates on the contract) AND the property transfer tax.
What transactions are subject to property transfer tax?
Taxable transactions include:
- transfer of fee simple
- right to purchase or agreement for sale
- lease or lease modification agreements
- life estate
- Crown grant
- escheat, forfeiture or quit claim
- transfer as a result of corporate reorganization
How much is property transfer tax in BC? How do I calculate property transfer tax?
The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit. As a buyer, you then pay the tax one-time at the time of registration, unless you qualify for an exemption. Without any exemption, the tax structure is as follows:
- 1% on the first $200,000
- 2% on the balance up to and including $2,000,000
- 3% on the balance greater than $2,000,000
What is fair market value?
In most cases the property transfer tax basis of fair market value is the purchase price. In some cases where there is no monetary exchange, such as an inheritance, the fair market value is usually based on BC property assessment.
For more information on fair market value and what you are charged, read this blog: Fair Market Value Information in Real Estate
Additional PTT for Foreign Entities
Effective August 2, 2016, an additional PTT charged at a rate of 15% of the fair market value applies to residential property transfers to foreign entities in Metro Vancouver or the Greater Vancouver Regional District. The additional tax applies on the foreign entity’s proportionate share of any applicable residential property transfer, even when the transaction may normally be exempt from the PTT.
This includes transactions between related individuals, a transfer resulting from an amalgamation, a transfer to a surviving joint tenant, and a transfer where the transferee is or becomes a trustee in relation to the property, even if the trust does not change.
Buyers of pre-sold strata units will typically pay the PTT on the total consideration paid for the unit (amount agreed to when the contact of purchase & sale was initially signed and accepted), not the fair market value on the date the title is registered (aka when the building is completed and built). The total consideration is the entire amount paid to acquire the property, including the price of the unit plus fees for upgrades or additions, or any premiums for the assignment of a written agreement. There are PTT exemptions for new homes (see below.)
For more details on presales and assignments, read our blog post here: Everything You Need to Know About Assignments
First Time Home Buyers’ Program
To help enter in to the market, the first time home buyer’s (FTHB) program gives an exemption to the property transfer tax in the case that you can qualify. There are partial exemptions, but to qualify for a full exemption you must:
- be a Canadian citizen or permanent resident;
- have lived in BC for 12 consecutive months before the date the property is registered; or
- have filed 2 income tax returns as a BC resident in the last 6 years;
- have never owned an interest in a principal residence anywhere, anytime; and
- have never received a first time home buyers’ exemption or refund.
- The property must be used as a principal residence and have a fair market value of $475,000 (if registered on or before February 21, 2017) or $500,000 (if registered on or AFTER February 22 2017) or less and be 0.5 hectares (1.24 acres) or smaller. You may still qualify for a partial exemption if the property has a fair market value of:
- $500,000 if registered on or before February 21, 2017, or
- $525,000 if registered on or after February 22, 2017
Newly built homes
There’s a PTT exemption for newly built homes with a fair market value of up to $750,000, including a house constructed on vacant land, a new apartment in a newly built condominium building, a manufactured home on vacant land, and other newly built homes. There are also occupancy requirements. There’s a partial exemption for property with fair market value of $750,000 – $800,000.
If you registered a vacant lot and paid the tax, you may apply for a refund if you have:
- built a new home on the land worth $750,000 or less;
- moved into the home as a principal residence within one year of registering the property; and
- meet the qualifications for the Newly Built Home Exemption.
There are many PTT exemptions, including family exemptions, for example:
- transfer of a principal residence
- transfer of a recreational residence
- transfer resulting from a marriage breakdown
- transfer of a family farm involving individuals
- transfer of a family farm to or from a family farm corporation
For more info information on property taxes and what is taxable, read this blog: Taxable Property Transactions in BC
Is PTT charged if no money has changed hands? What if I inherited my property?
Yes, tax is charged on the fair market value at the date of registration regardless of the purchase price, unless you qualify for an exemption. For example, some transactions that are taxed even when no money changes hands may include: gift of property, change from tenancy in common to joint tenancy or vice versa, transfer of property between a company and its shareholders.
Do I qualify for the First Time Home Buyers Program if I’ve never owned a property but my spouse has?
Yes. It depends on the percentage of the home owned by each of the spouses. Make sure that you are not on title for the property your spouse has.
If you’re also interested in the BC HOME Partnership loan program offered by the BC government, then read our blog post here to see if you qualify: First Time Home Buyer Loan BC
How does the tax apply to transfers between joint tenants?
If a registered fee-simple ownership of a property is held in joint tenancy, tax is charged on the portion of the interest in the property being transferred.
What happens if I cheat?
If you cheat, you have to take the risk of the CRA finding out in the case that you are audited. An example of cheating would be stating that the property is your primary residence if you had an exemption, when you are actually renting it out. An audit will identify any transactions where tax obligation may have been done incorrectly.
What happens if I just don’t pay the tax?
You will have to face the consequences, because your transaction may not be registered.
Property Transfer Taxes aren’t the only costs you will have when buying a home. Read our Costs of Buying a House in BC post to find out all the other expenses you will find in the home buying process. From taxes, to insurance, to legal fees, there are more expenses to budget for.
If you’re looking for a home and want a full breakdown on closing costs to expect at completion, give us a call at 604-765-0376. Prefer text? 604-319-0200 or email firstname.lastname@example.org! We will walk you through everything you need to know about property transfer tax, GST, moving costs, and more – along with find you your new dream home!
OTHER POSTS YOU MIGHT BE INTERESTED IN…