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Foreign and non-resident investors in Canadian real estate recently have seen a number of changes made to provincial tax regimes that could impact their buying and tax strategies. The most publicized are the B.C. government’s 15 percent foreign buyer tax and three percent property transfer tax on homes over $2-million in the Vancouver Regional District.
While there are no restrictions on the amount or kind of real estate foreigners can buy in Canada, this new tax is an attempt to reduce competition for local Metro Vancouver residents seeking to buy a home in the most expensive market in Canada. For example, the new foreign buyer tax will add approximately $300,000 to the purchase of a $2-million home, compared to the 1-2- and 3 percent property transfer taxes residents pay.
The additional cost to a residential property purchase in Vancouver, however, does not mean additional legal considerations: it is a straightforward tax increase alone. And it does not apply to commercial properties.
The 15% tax applies to foreign buyers – non-Canadian citizens and non-residents, foreign-registered corporations, or Canadian corporations controlled in whole or in part by foreign nationals or foreign corporations. It is levied on all applicable sales in the Greater Vancouver Regional District* registered with the Land Title Office on or after August 2, regardless of when the contract was signed.
Since the tax rule came into effect 24 hours after being announced, many residential home buyers who had signed contracts prior to Aug. 2, 2016 were left with unexpected and sometimes onerous additional costs.
The new tax is in addition to B.C.’s general property transfer tax and unfolds when a lawyer completes a title registry on the purchase of a home. According to provincial guidelines, the additional tax must be paid to the government with the general property transfer tax when the property transfer is registered with the Land Title Office.
If more than one buyer is listed, each transferee is jointly and severally liable for the additional tax payable. If one transferee does not pay the required additional tax, the other transferees, including Canadians, must pay that transferee’s share of the additional tax payable. Failure to pay the additional tax may result in hefty fines of up to $200,000 and / or up to two years in prison.
To be clear, the 15 percent foreign buyers tax does not apply to Canadian citizens or permanent residents. Contact a trusted accountant or the BC Ministry of Finance website to fully understand the tax implications of buying a residential property.
For many foreign buyers of residential properties in the Vancouver market, the additional 15 percent is not a deterrent, although there are some indications sales of luxury homes have declined in August. While some attribute the slight drop in home sales to seasonality, others believe buyers are headed east, toward Toronto, which also has a large Asian community.
The B.C. government also is looking into imposing a tax on vacant homes after a study commissioned by Vancouver found about 10,800 empty homes in the city – mostly condos- as of 2014. This and the possible shift in market interest to Toronto has raised concerns the Ontario government could be contemplating a similar foreign buyer tax as that of B.C. to cool down its already overheated residential real estate market.
In the interim, a class action law suit has been launched against the B.C. government`s foreign buyers tax, alleging it violates dozens of international treaties. The suit, filed in the B.C. Supreme Court on behalf of non-Canadians forced to pay the tax, also says only the federal government can dictate who can buy what.
While real estate buyers had no time to prepare for the B.C. foreign buyers tax, which was announced and put into law within one day, they can consider different strategies to mitigate these and future tax increases. As with any investment, it’s important to contact your accountant to understand fully and prepare for how buying a home in Canada will affect you.
* The Greater Vancouver Regional District includes Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley City and Township, Lion’s Bay, Maple Ridge, New Westminster, North Vancouver City and District, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, White Rock and Electoral Area A. The additional tax does not apply to properties located on Tsawwassen First Nation lands.
Related Topics:Property; Tax Rates
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