Loren Goldman Review New BC real estate taxes

Lorne Goldman Reviews: The BC Budget and You

Feb 28, 2017 UPDATE
Not yet reported in the media is this impending change which I find of note:

The Honorable Selina Robinson, Minister of Municipal Affairs and Housing, has now clarified after intense pressure and following discussions with the Honorable Carole James, Minister of Finance, that this tax will now NOT apply to apartment buildings! Robinson stated that they will not be using the Class 1 Residential classification, which is used to administer the Foreign Buyer’s Tax.

Please see this article from today’s Vancouver Sun that highlights which residential areas are predicted to be most impacted by the tax changes.

The BC government imposed some striking changes in the budget that will affect you as a homeowner or multi-family property owner.

Increase in School Tax on Residential Property Assessed Over $3 Million

Effective January 1, 2019, the school tax on residential property assessed over $3 million will be increased, on the portion on the value in excess of $3 million. A tax rate of 0.2% will apply on the residential portion of property that exceeds $3 million and a tax rate of 0.4% will apply on the residential portion of property that exceeds $4 million.

This is the one part of the budget that will have significant impact on those whose assessed value is over $3,000,000.

The additional tax would be as follows…

Property worth:

$4,000,000 = $2,000 extra tax
$5,000,000 = $6,000 extra tax
$6,000,000 = $10,000 extra tax
$7,000,000 = $14,000 extra tax
$8,000,000 = $18,000 extra tax
$9,000,000 = $22,000 extra tax
$10,000,000 = $26,000 extra tax

What is surprising is that this tax applies to rental apartment buildings. I know of one owner whose portfolio had a tax increase of $800,000! It is safe to assume some apartment building owners will try and pass on these additional costs to their existing and future tenants. Clearly this tax will not encourage new rental buildings to be built! The Goodman Report supports the notion that this “ill-conceived” tax is going to “punish tenants and rental apartment owners alike”.

Additional Changes to the Property Transfer Tax Act

  1. Increasing the limitation period for assessments to six years;
  2. Enabling the collection of additional buyer information;
  3. Introducing administrative penalties for non-compliance;
  4. Extending the application of the general anti-avoidance rule from the Foreign Buyers Tax to general PTT; and
  5. Enabling tax administrators to compel access to information relevant to transfers such as information held in a Multiple Listing Service database.

Changes in Property Purchase tax Over $3,000,000

There is a new 5% PTT Rate on Residential Properties over $3 million. Prior to February 21, 2018, the PTT rate on the FMV of the land and buildings on the date of acquiring a Land Title Office registered interest in property was as follows:

  1. 1% on the first $200,000;
  2. 2% on the portion greater than $200,000 and up to and including $2 million; and
  3. 3% on the portion greater than $2 million.

Effective February 21, 2018, the PTT rate on the proportion of the value of residential property over $3 million will be 5% rather than 3%. This change does not affect commercial properties, but does not exempt properties classified as residential and farm, or that are residential mixed class (i.e. residential and commercial – on the value residential portion only).

Changes to Foreign Buyer’s Tax

Effective February 21, 2018, the Foreign Buyers Tax is increasing from 15% to 20% in the GVRD. The 20% Foreign Buyers tax is also now applicable in the Capital Regional District, the Fraser Valley, the Central Okanagan and the Nanaimo Regional District. Details about exemptions and transitional rules relating to the foreign buyers tax can be found here. Importantly, if the property is located in the Capital Regional District, Fraser Valley Regional District, Regional District of Central Okanagan or Nanaimo Regional District, a written agreement has been entered into on or before February 20, 2018, and closing occurs on or before May 18, 2018, then the 20% foreign buyers tax is not applicable.

New Speculation Tax

The new speculation tax will affect owners of residential property in B.C. who do not pay taxes in BC and owners who leave their properties vacant. Tax rate will be 0.5% of taxable assessed value for 2018 and 2% thereafter. The tax will apply in the GVRD, Capital Regional District, the Fraser Valley, the Central Okanagan and the Nanaimo Regional District. Although the tax will affect satellite families, BC will provide exemptions for eligible principal residences, long-term rental properties and special scenarios. According to the Budget, those who pay income tax in BC will benefit from a non-refundable income tax credit to offset the new speculation tax. It is expected that BC will announce further details about these changes in the near future.

The Vancouver Courier, in an article dated February 26, 2018, contends this is not really a “speculation tax”. Rather, it is a non-resident owner tax. Global News also did a piece that examines how this tax will affect Albertans.

Beneficial Transfers of Land

BC has NOT taken immediate steps to apply Property Transfer Tax to beneficial transfers of land (i.e. those where a Form A Transfer is not filed with the Land Title Office). However, the below section on ownership could be evidence of BC setting the stage for potential changes to this landscape in the time ahead.

Tracking Beneficial Ownership

Effective February 21, 2018, additional information is required about beneficial ownership on the PTT Return submitted with every Form A Transfer in the LTO. This is an expansion on the additional information the Province began collecting in 2017 on PTT Returns. A registry setting out beneficial ownership of land in B.C. will also be established and made publicly available. It is also expected that legislative amendments will be implemented that require corporations in B.C. to hold accurate and up to date information on beneficial owners in their records offices. It is also expected that the beneficial owner registry and information in corporate records’ offices will also be available to federal and provincial tax and law enforcement authorities. The timeframe and process for establishing these registries, and details on how information will be collected for existing properties, is not clear at this time.

B.C. Budget 2018 Update – Province to Require Pre-Sale Condo Registry

BC stated that developers will be required to collect and report comprehensive information on pre-sale condo assignments. This information will not be publicly available however, BC intends to share this information with tax authorities to support compliance with federal and provincial taxes and to inform future housing and tax policies. BC has yet to disclose the information it will require developers to collect and report, but it is likely that this will include the names and residency statuses of the original purchaser and any assignee, if applicable, and the amount of any consideration paid by an assignee to the assignor, if any. It is expected that BC will announce further details about these changes in the near future.

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