New Tax on Residential Property Transfers to Foreign Entities in Metro Vancouver
There has been a lot of discussion in the media, amongst politicians and most likely in your circle of friends recently about the rapid increase in housing prices in B.C. and particularly in the Lower Mainland. There is also a lot of speculation going around that these rapid increases are being fuelled by foreign investors.
The provincial government collected data for just over a month in June and July of this year on where purchasers of real estate are coming from. The results show that foreign nationals invested over $1 billion into B.C. real estate between June 10 and July 14, 2016 and over 86% of that was invested in the Lower Mainland.
So, the province decided to act. As of August 2, 2016, foreign nationals will pay an additional 15% on all purchases of residential real estate in Metro Vancouver, excluding treaty lands of the Tsawwassen First Nation. This is a new category of Property Transfer Tax and will apply in addition to the existing Property Transfer Tax rates of 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; and 3% on the portion of the fair market value greater than $2,000,000. Further, this will apply even where the transaction is normally exempt from Property Transfer Tax such as where the transfer is between related individuals, to a surviving joint tenant, etc.
This new category of Property Transfer Tax will apply to individuals who are foreign nationals, trusts where the trustee is a foreign entity or where at least one beneficiary of the trust is a foreign entity, and corporations that are not incorporated in Canada and corporations that are incorporated in Canada but are controlled by foreign entities.
While this new tax will only apply in Metro Vancouver to begin, the province may expand it to apply to additional areas of the province down the road.
Further, there are significant fines and/or potential imprisonment for Real Estate developers who provide incorrect information relating to the new Property Transfer Tax.
The Superintendent of Real Estate in BC is warning developers of these concerns. Under the legislation, an individual who fails to pay the additional Property Transfer tax or who participates in providing incorrect information to avoid the tax could be liable for fines up to $100,000 and/or two years in prison.
At the end of the day, if you are considering purchasing property in Metro Vancouver and you are a foreign individual or entity, you will be liable for a lot more tax after August 2, 2016. If you are hoping for some cooling off of Vancouver’s housing market, it will be interesting to watch the implications of this new tax in the following months.
For more information, please see the Ministry of Finance’s Tax Information Sheet.
Paul Tonita is a solicitor practicing in the areas of business law, real estate and estate planning. His business experience includes assisting clients right from the beginning by discussing the different business structures and incorporating, buying and selling businesses, assisting with lending or financing needs, drafting and advising on contracts, and providing general advice to business owners.
His real estate practice involves assisting both residential and commercial clients with purchases, sales, financing and leasing.
Paul also assists clients planning for their future with estate and incapacity planning.
For more information please contact Paul Tonita at 250-869-1126 (direct line) or email him at firstname.lastname@example.org.