What Non-resident Buyers or Sellers of Real Estate in BC Needs to Know about Taxes

Recently, the Canadian government introduced a 2-year ban on foreign homebuyers in the hope of cooling the housing market. As a non-resident in Canada, you may need to consider more factors than the locals when buying or selling a real estate property.

Non-resident buyers have entitled to the same tax rates for all commercial property purchases as local buyers. Therefore, this article talks about residential properties only because local buyers/homeowners and non-resident buyers/homeowners may pay taxes with significant differences.

Non resident buyers in British Columbia

The 2-year ban restricts foreign nationals from buying residential properties, including condos, apartments, and single residential units. Permanent residents, foreign workers and students will be excluded from the measure, as well as foreigners buying their primary residence in Canada. Therefore, the ban only applies to foreign nationals who do not have a valid work permit, or a study permit, and want to purchase a residential property, not as his/her principal residence.

Before the nationwide foreign homebuyer ban, the BC government first launched the additional property transfer tax (Additional PTT) to non-resident buyers in August 2016.

If a buyer is a foreign national, foreign corporation or taxable trustee, you must pay the additional property transfer tax on your proportionate share of a residential property’s fair value if the property is within specified areas of BC.  The current tax rate is 20%.

Pursuant to section 2.01 of the Property Transfer Tax Act of BC, a “foreign corporation” means a corporation that is not incorporated in Canada, or a corporation that is incorporated in Canada and is controlled by foreign nationals or non-Canadian corporations unless the shares of the corporation are listed on a Canadian stock exchange. A “foreign national” means an individual who is a foreign national as defined in section 2 (1) of the Immigration and Refugee Protection Act (IPRA):

“foreign national means a person who is not a Canadian citizen or a permanent resident, and includes a stateless person.”

In British Columbia, non-residents may need to pay the additional PTT in addition to GST (Goods and Services Tax) and PTT (property transfer tax) when buying a residential real estate property. GST, PTT, and additional PTT are one-time taxes that a purchaser must pay on the acquisition of the home.

Taxes to be paid upon title transfer in BC

Let’s start with a newly built home purchase sample. A is a Canadian buyer, B is a non-resident who received a BC PNP Nomination prior to his completion date, and C is a foreign national. Each of them purchased a newly build residential property with the contract price of $750,000 (excl. taxes) in a city in the Metro Vancouver region and plans to move in as their principal residence. The below table gives the taxes each buyer needs to pay upon their title transfer respectively.

Newly Built Home: $750,000	A: Canadian Buyer	B: Non-resident Buyer who received BC PNP Nomination	C: Non-resident Buyer
GST	$37,500.00	$37,500.00	$37,500.00
GST Rebate	$0.00	$0.00	$0.00
PTT	$13,000.00	$13,000.00	$13,000.00
PTT Exemption	-$13,000.00	$0.00	$0.00
Additional PTT	$0.00	$0.00	$150,000.00
Total Taxes Upon Title Transfer	$37,500.00	$50,500.00	$200,500.00

You can conclude that their taxes for the same property purchase are various by their immigration status.

GST AND GST NEW HOUSING REBATE (FEDERAL TAX)

GST will apply to every supply of real property in Canada unless there is an exemption provided for in the Excise Tax Act. A sale of a used residential property is exempted from GST. A New housing buyer is required to submit a 5% GST of contract price to Revenue Canada directly or through the vendor’s lawyer.

A purchaser may be eligible for Federal New Housing Rebate if

• the purchaser is an individual buying the home as its primary place of residence, and the individual must live in the home more than half of the time; and
• the purchase price must be less than $450,000.

In our sample above, the newly built property is subject to GST, but ineligible for GST new housing rebate because its price is higher than $450,000. Therefore, all three buyers need to pay the full amount of GST.

PTT AND PTT EXEMPTIONS IN BC (PROVINCIAL TAX)

When you purchase or gain an interest in property that is registered at the Land Title Office, you or your legal professional must file a property transfer tax (PTT) return and you must pay property transfer tax, unless you qualify for an exemption.

There are three rates to consider when calculating your total PTT amount:

• General property transfer tax applies for all taxable transactions:
  • 1% of the fair market value up to and including $200,000
  • 2% of the fair market value greater than $200,000 and up to and including $2,000,000
  • 3% of the fair market value greater than $2,000,000
• Further 2% on residential property over $3,000,000
• Additional property transfer tax for foreign buyers (will be talked about in the next section).

The property price of $750,000 decides its PTT is $13,000 in our sample. Because A is a Canadian buyer, he is not subject to the additional PTT.

When you purchase or gain an interest in a property, there are many ways you may qualify to reduce the amount of tax you need to pay, such as newly built home exemption, family exemptions, newly built home exemptions, etc.

If you are purchasing a newly built home, you may qualify to eliminate the amount of PTT if you are:

• An individual
• A Canadian citizen or permanent resident (you will be asked to provide your Social Insurance Number (SIN) or proof of permanent residency and your birthdate)

and the property must:

• Be located in B.C.
• Only be used as your principal residence
• Have a fair market value of $750,000 or less
• Be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption, if the property:

• Has a fair market value greater than $750,000 and less than $800,000
• Is larger than 0.5 hectares
• Has another building on the property other than the principal residence
• plans to move in as their principal residence

For our sample property purchase, A is qualified to be exempt from the PTT, while B must remit PTT because he is neither a citizen nor a permanent resident of Canada.

ADDITIONAL PTT IN BC

As a foreign buyer, if your property transfer is within the following areas, the tax rate is 20% on the fair market value of your proportionate share:

• Capital Regional District
• Fraser Valley Regional District
• Metro Vancouver Regional District
• Regional District of Central Okanagan
• Regional District of Nanaimo

The additional PTT doesn’t apply to properties located on Tsawwassen First Nation treaty lands.

In some circumstances, you may be exempt from the additional PTT if you’re:

• Exempt from property transfer tax
• A confirmed B.C. Provincial Nominee
  • a certificate of nomination is required, and the nomination date must be earlier or the same as the completion date.
  • The property must be used as your principal residence
  • The property transfer must be made to an individual
• Acquiring a property on behalf of a Canadian-controlled limited partnership

In the above-mentioned sample, B is a confirmed B.C. Provincial Nominee, so B is exempt from the additional PTT.

You may apply for a refund for the additional PTT that you have paid if you became a permanent resident or Canadian citizens within one year of the completion date of your property purchase, or you paid the tax in error. You also need to meet the following requirements:

• Used the home as your principal residence
• Moved into the home within 92 days from the date the property transfer was registered
• Continued to live in the home as your principal residence for at least one full year after the date the property transfer was registered

Not received a B.C. Provincial Nominee exemption

Annual property taxes in BC

Besides the taxes to be paid upon property transaction, buyers also need to consider annual property taxes, such as BC’s Speculation and Vacancy Tax, Vancouver’s Empty Home Tax, and property tax.

SPECULATION AND VACANCY TAX IN BC FOR NON-RESIDENT HOMEOWNERS (PROVINCIAL TAX)

The speculation and vacancy tax is an annual tax based on how owners use residential properties in major urban areas in B.C. The tax has an annual declaration process and is administered by using data from partner agencies.

Only those owning property classed as residential and located in a designated taxable region listed below in B.C. must complete a declaration for the speculation and vacancy tax by March 31 of each year.

• Capital Regional District (CRD)
• Metro Vancouver Regional District
• City of Abbotsford
• District of Mission
• City of Chilliwack
• City of Kelowna
• City of West Kelowna
• City of Nanaimo
• District of Lantzville

For 2019 and subsequent years, the tax rate is:

• 2% for foreign owners and satellite families
• 5% for Canadian citizens or permanent residents of Canada who are not members of a satellite family

A homeowner who is neither a permanent resident nor a citizen of Canada, or who is an untaxed worldwide earner, also known as a member of a satellite family, cannot be exempt from the tax due to Principal residence reason.

However, if a renter or non-arm’s length tenant occupies an owner’s home for at least six months in the calendar year, the owner, including a non-resident owner, may be exempt from the tax. Owners can be exempt for their entire property if they rent one or more residences on it.

VANCOUVER’S EMPTY HOMES TAX (MUNICIPAL TAX)

Homeowners in the city of Vancouver are required to submit a declaration each year to determine if their property is subject to the Empty Homes Tax. It’s also an annual tax.

Properties deemed or declared empty in the 2021 reference year will be subject to a tax of 3% of the property’s 2021 assessed taxable value.

Most properties will not be subject to the Empty Homes Tax, including those:

• Used as a principal residence by the owner, their family member or friend, or other permitted occupier for at least six months of the vacancy reference year
• Rented for residential purposes for at least six months of the vacancy reference year, in periods of 30 or more consecutive days
• Meeting the criteria for one of the exemptions

Empty Homes Tax applies to local homeowners and non-resident homeowner equally.

PROPERTY TAX (MUNICIPAL TAX)

When you own or lease a property or manufactured home in B.C., property taxes must be paid yearly for each property. The amount you pay is based on the funds needed to provide services for the year. TAX RATES AND YOUR PROPERTY ASSESSMEN determine how much property tax you pay. There is no tax rate difference between local homeowners and non-resident owners.

Non-resident sellers in BC

When we talk about non-resident sellers, we mean the non-residents for tax purposes under the Income Tax Act of Canada. A permanent resident or a citizen of Canada may be a non-resident if he/she does not have significant residential ties in Canada and lived outside Canada for less than 183 days in the year, or is a deemed non-resident of Canada under the Income Tax Act.

When a non-resident disposes or sells a property, the non-resident is required to pay the appropriate amount of taxes on any gain. In order to satisfy the Buyer that the tax is paid, the Seller must provide to the purchaser, a clearance certificate from Revenue Canada.

The Seller should apply for a certificate under the assistance of an accounting professional. The amount owing is deducted from the sale proceeds and sent directly to the federal government by the Seller’s lawyer. The wait for the clearance certificate is usually around 3 months or longer.

Usually, the Seller’s lawyer is required to hold back from the sale proceeds a percentage (25% – 50%) of the contract price or fair market value. The holdback remains in the Seller’s lawyer’s trust account until the certificate is obtained after the taxes are paid from the holdback. The Seller receives any amount left over after the clearance certificate is obtained.

Should you have any questions on non-resident property purchase or selling, please feel free to contact Taylor Janis LLP at our Vancouver office.