Whether you purchase property as your primary home or for investment purposes in British Columbia (B.C.), you need to be aware of the impact of property transfer tax expenses on your total closing costs.
What is The Property Transfer Tax?
Property transfer taxes differ from the annual recurring property taxes you must pay when you own a property. The property transfer tax is a tax you pay when you purchase a property or gain interest in a registered property with the Land Title Office. Generally, when buying a property, you need a lawyer’s services, including filing a property tax transfer and making the tax payments on your behalf.
Your Property’s Fair Market Value
The fair market value of your property determines the property transfer tax amount you must pay when you register the property. Most houses in the public real estate market are considered listed at fair market prices, as offers are open to everyone. Generally, when you buy a property in the open real estate market, the purchase price is the fair market value, provided you register your property with the Land Title Office within only a few months of the purchase.
If you allow significant time to pass without registering the property, you may need to verify the fair market value of your property, especially if the property’s value has changed significantly from the purchase date, or the property’s condition has changed. You also need to verify the fair market value of a property you purchase from a non-open real estate market.
You can verify the fair market value of a property using a recent independent appraisal or the BC Assessment property valuation.
How Much is Your Property’s Transfer Tax?
When calculating the total property transfer tax amount for your property, you need to determine if you are required to pay the general property transfer tax, a further 2% on residential property over $3,000,000, and the additional property transfer tax.
As of 2023, the general property tax rates that apply to all transactions are as follows:
|Property fair market value
|Property Transfer Tax rate
|Up to $200,000
|1% of fair market value
|Greater than $200,000 and up to $2,000,000
|2% of fair market value
|Greater than $2,000,000
|3% of fair market value
A further 2 % property transfer tax is applied to property value greater than $3,000,000 for residential properties. If you use a property for commercial and residential purposes, the further 2% tax applies to only the residential portion. Properties with land classified as farm only for an owner’s or farmer’s dwelling will have 0.5 hectares considered as residential property.
Additional Property Transfer Tax
Foreign nationals, corporations, and taxable trustees are required to pay an additional tax on the proportionate share of residential properties within specified areas in British Columbia.
As a foreigner, your proportionate share of a residential property’s fair market value depends on the percentage interest you hold in the property registered with the Land Title Office. If you purchase 100% of a residential property, you are responsible for the additional tax on 100% of the property’s fair market value. Likewise, holding 30% of a residential property as a foreign entity means that you will pay the additional property transfer tax on only 30% of the property’s fair market value.
Residential property transfer transactions within the Capital Regional District, Fraser Valley Regional District, Metro Vancouver Regional District, Regional District of Central Okanagan, and the Regional District of Nanaimo have a 20% additional tax on the fair market value of your proportionate share. Specific transitional rules apply to property transactions dated on or before February 20, 2018.
Property Transfer Tax Exemption
You can reduce or eliminate the property transfer tax depending on your purchase situation or residency status. The B.C. government provides exemptions for the property transfer tax. Examples of such exemptions are the first-time home buyers’ program, purpose-built rental exemption, newly built home exemption, and family exemptions.
Family exemptions include transfers of a principal residence, recreational residence, or family farm involving individuals, family farm to or from a family farm corporation, or transfers resulting from a marriage breakdown.
As a first-time home buyer, you may receive a partial or complete exemption from the property transfer tax. To qualify, you must be a Canadian citizen or permanent resident and have lived in British Columbia for at least a year just before you register the property. You must have also filed at least two income tax returns as a British Columbia resident in the last six taxation years just before the date you register the property.
First-time home buyers should never have owned a registered interest in a primary residence property anywhere in the world at any time and have never received a first-time home buyers’ property tax exemption or refund. Additionally, the property must be for principal residence purposes only with a fair market value of not more than $500,000 and not greater than 0.5 hectares.
Foreign entities may be exempt from the additional property transfer tax if they meet other exemptions and are confirmed B.C. Provincial Nominee, or are acquiring a property on behalf of a Canadian-controlled limited partnership.
Starting on January 1, 2024, purchasing a new qualifying purpose-built rental building may qualify for an exemption from the further 2% property transfer tax. You may be eligible for a partial exemption if you do not meet the general exemption conditions. Consult with an accountant to maximize your tax benefits.
To find out if you qualify for an exemption on the further 2% property transfer tax for residential properties valued over $3,000,000, family exemptions, foreign entity exemptions, or other exemptions, book a consultation with DW & Associates Chartered Professional Accountants.