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Real Estate Tax Changes in Greater Victoria - Please Read this is Important !

The speculation tax applies to residential property in British Columbia’s largest urban centers facing the housing affordability crisis. The tax applies in the Metro Vancouver Regional District (excluding Bowen Island and Electoral Area A, except the part of the electoral area that is the UBC and University Endowment Lands), the Capital Regional District (excluding the Gulf Islands Juan de Fuca), Kelowna-West Kelowna, Nanaimo-Lantzville (excluding Protection Island), Abbotsford, Chilliwack, and Mission. Most islands are excluded.


Exemptions

  • Primary residences of British Columbians are exempt from the tax.
  • Properties that are used as qualifying long-term rentals are exempt from the tax. Homes will need to be rented out for at least three months to qualify for an exemption in 2018. Starting in 2019, homes will need to be rented out for at least six months, in increments of 30 days or more, to qualify for an exemption
  • Over 99% of British Columbians will be exempt, because the vast majority of homes owned by British Columbians in the province’s urban centers will either be owner-occupied or will be rented long-term.


Rate design

  • In 2018, the tax rate for all properties subject to the tax is 0.5% on the property value.
  • In 2019 and subsequent years, the tax rates will be as follows
    • 2% for foreign investors and satellite families
    • 1% for Canadian citizens and permanent residents who do not live in British Columbia
    • 0.5% for British Columbians who are Canadian citizens or permanent residents (and not members of a satellite family)


Credit design

British Columbians who are Canadian citizens or permanent residents, and not part of a satellite family, will be eligible for a tax credit that is immediately applied against the speculation tax. This credit will offset a total of $2,000 in speculation tax payable. For homeowners with multiple properties, the tax credit will only apply to one property.


This tax credit will ensure that British Columbians do not pay tax on a second home valued up to $400,000. For more expensive vacant properties, the credit ensures that tax only applies to the value of the property above $400,000.

 

Who doesn’t pay the tax

  • The vast majority of British Columbians
  • People whose homes and cottages are outside the designated urban centers
  • Homeowners with properties in designated urban centers, but who rent them out long-term
  • Those eligible for special exemptions, including
    • The owner or tenant is undergoing medical care or residing in a hospital, long-term care or a supportive-care facility
    • The owner or tenant is temporarily absent for work purposes
    • The registered owner is deceased and the estate is in the process of being administered


Who pays the tax

  • Foreign speculators and satellite families
  • Domestic speculators
  • Those with multiple properties in B.C.’s designated cities that are vacant most of the year


Stress Test

AllCanadian home borrowers are required to qualify for 2% more than their contracted mortgage rate when applying for a new mortgage.

GST

New residential property/home

5% GST is payable on the purchase price of newly constructedor substantially renovated residential homes. Substantially renovated is defined in the legislation as the removal or replacement of most of the house construction components except for the foundation, external walls, interior supporting walls, floor, roof and staircase. This includes assignment of contracts.

 

“Used” residential property/home

GST is not applied to used housing, as the first owner of the property would have already paid it (unless substantially renovated – see above).


GST New Home Rebates

  • If the purchase price is $350,000 or less, new home buyers can apply for a rebate of the 5% GST. The rebate is up to 36% of the 5% GST to a maximum rebate of $6,300.


Assume the purchase price of a new home is $350,000 excluding GST. The gross GST. is $17,500 (5% of $350,000). The GST New Housing Rebate is 36% of $17,500, which is $6,300. Thus, the applicable GST. is $17,500 less $6,300, which equals $11,200.


  • If the purchase price is between $350,000 and $450,000, there is a proportional GST rebate.


The rebate is gradually reduced and is calculated by using the following formula:


$6,300 x [$450,000 – the purchase price] / $100,000

 

For example, assume the purchase price of a new home is $400,000 excluding GST The GST New Housing Rebate is:


$6,300 x [$450,000 – $400,000.00] / $100,000

 

Which equals $3,150. The gross GST would be 5% of $400,000.00, which equals $20,000.00, less the partial GST New Housing Rebate of $3,150.00, for a net tax of $16,850.00.


  • If the purchase price is over $450,000,there is no GST New Housing Rebate.


* Please note that the Developer may agree in the Contract to credit the Purchaser on completion for the rebate, but not all Developers allow this. If they do not, the Purchaser will have to pay the full 5% GST on completion and will then have to apply directly to C.R.A. for the GST New Housing Rebate after closing. This means the Purchaser will have to ensure that they have additional funds to cover the 5% GST on completion. Note the GST New Housing Rebate is not available to a corporation or a partnership. If the developer pays the GST, the buyer will be required to sign over the rebate to the developer when it is received.

 

Rental Rebates

If a Purchaser is planning to rent out the new home, they may be eligible for a GST New Residential Rental Rebate. The full GST NRR Rebate is only available on new homes priced up to $350,000. A partial GST NRR Rebate is available for homes priced between $350,000 and $450,000. To be eligible the purchaser must meet certain conditions which include:


  1. The Purchaser must not be entitled to claim input tax credits in respect of any part of the tax payable on the acquisition of the rental unit.
  2. The rental unit must be a “qualifying residential unit” which means the person applying for the rebate must be the owner of the unit and the unit must be a self-contained residence as defined in the Excise Tax Act
  3. The unit must be held by the owner for the purpose of making exempt supplies (for example, a residential tenancy)
  4. The unit must be used as a primary place of residence by the tenants and must be so used for at least one year and the Purchaser will have to provide a copy of the tenancy agreement showing a term of at least one year.

 

* Please note that the Developer is not allowed to credit the Purchaser on completion with the GST NRR Rebate. This means the Purchaser will have to pay the full 5% GST on completion and then claim the GST NRR Rebate afterwards directly from C.R.A. The Purchaser will have to ensure that they have the necessary funds to cover the 5% GST on completion.

 

Property Transfer Tax and Foreign Buyers’ Tax

Property Transfer Tax

Property Transfer Tax on residential properties is 5% on the portion of the fair market value greater than $3,000,000 effective February 21, 2018.


As of 2018, the applicable rates are as follows:


  • 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
  • 3% on the portion of the fair market value greater than $2,000,000
  • If the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000

BCREA Tax Calculator: http://www.bcrea.bc.ca/taxapp/


Foreign Buyers Tax

Foreign Buyers’ Tax is 20% as of February 21, 2018. It has also been extended outside of the Greater Vancouver Regional District to include the Capital Regional District, Fraser Valley, Central Okanagan and Nanaimo Regional District. Foreign entities in these taxable regions are subject to this tax (persons who are not a Canadian citizen, Permanent Resident or registered under the Provincial Nominee Program).


If the property transfer is registered on or before February 20, 2018 and is within the Greater Vancouver Regional District, the tax amount is 15% of the fair market value of your proportionate share.


Example:

If the fair market value of a home is $3,000,000 and the purchaser is a foreign buyer, the total PTT bill would be $668,000. (i.e.: $600,000 as the amount of the foreign buyers’ tax plus $68,000 as the amount of the basic PTT)

 

Non-Resident (Foreign) Sellers

The Income Tax Act of Canada provides that whenever a non-resident disposes of property, the non-resident is required to pay the appropriate amount of taxes on any gain.  In order to satisfy the Buyer that the appropriate amount of taxes are paid, the Seller must provide to the purchaser, on or before closing, a clearance certificate from Revenue Canada.  This certificate is issued by the federal government and certifies that a certain amount of money is payable for the taxes.  The amount owing is deducted from the sale proceeds and sent directly to the federal government by the Seller’s lawyer.


The clearance certificate is issued pursuant to section 116 of the Income Tax Act and is usually required on the closing date.  The application for the certificate may be made prior to closing by the Seller, but not until there has been a subject free contract of purchase and sale.  The wait for the clearance certificate is usually around 3 months, so in a perfect world, there would be a 3-month lead-time between subject removal and the completion date.

Complications can arise if the certificate is not obtained prior to the closing date.  In such a case, the Buyer is required to hold back from the sale proceeds a percentage of the selling price.  This percentage is between 25% and 50%, depending on whether the property is non-depreciable property (a residence of the Seller), depreciable property (the property has been rented), or inventory (Seller is a builder).  The transaction closes with the money remaining in a lawyer’s trust account until the certificate is obtained.  Once the certificate is obtained, the taxes are paid from the holdback and the Seller receives any amount left over.

Note that the holdback is based on the selling price, not the equity in the property.  If there is financing on the property, the Seller may need to pay this financing from other sources.


Sources:

https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax

https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/publications/is-2018-001-speculation-tax.pdf

UBC Sauder School of Business Real Estate Trading Services Licensing Course Bulletins

https://www.bcrealestatelawyers.com/basic-info-for-residential-real-estate/

http://bridgewellgroup.ca/blog/gst-on-real-estate-in-bc/

https://www.bcrealestatelawyers.com/non-resident-buyers-and-sellers-of-real-estate/

Home Owner Grants

Home Owner Grants are a type of tax relief from property taxes for an owner of an eligible property, if he or she occupies it as a principal residence.


To be entitled to a basic grant:

  • Must be owner of an eligible residence
  • Must be registered owner of the property
  • Must be ordinarily resident in British Columbia
  • Must be Canadian citizen or permanent resident of Canada
  • Must occupy the property as his or her principal residence


As of 2018, the grant is $570. (this is deducted from the Property Tax payable by the particular owner)

Grant is available in full for homes having an assessed value of up to $1,650,000, but is phased out entirely for homes having an assessed value of $1,764,000 or more.

Owners must generally pay at least $350 in Property Taxes before obtaining the benefit of the grant.


Homeowner Grant Threshold

As of 2018: $1,650,000


Homeowner Grant Threshold is the maximum value of an assessed or partitioned property where home owners are eligible to claim the home owner grant.


You may be able to claim the full grant amount if your property has an assessed or partitioned value of $1,650,000 or less.


If you meet all requirements but your property’s assessed or partitioned value is over $1,650,000, you may qualify for the grant at a reduced amount.


The grant is reduced by $5 for each $1,000 of assessed value over $1,650,000. This means the grant isn’t available for properties assessed over $1,819,000 ($1,859,000 in a northern and rural area).


If your property has an assessed value of more than $1,819,000 ($1,859,000 in a northern and rural area), then you aren’t eligible for a home owner grant. You may still qualify for a low income grant supplement, even though you aren’t receiving the home owner grant, and can apply for the supplement on its own.

 

Other types of Home Owner Grants

Seniors Grant

To qualify:

  • Registered owner of residence
  • Canadian citizen or permanent resident
  • Live in British Columbia
  • Residence is your principal residence
  • Must pay at least $100 in property taxes 
  • Assessed or partitioned value of your property must not exceed the grant threshold
  • Ensure you meet additional requirements if you are buying or selling your property


Total grant amount:

  • $845 ($275 on top of regular grant of $570) in Capital Regional District, Greater Vancouver Regional District and the Fraser Valley
  • $1,045 in all other areas of British Columbia


Other information:

Disability Grant

To qualify:

  • Registered owner of residence
  • Canadian citizen or permanent resident
  • Live in British Columbia
  • Residence is your principal residence
  • Assessed or partitioned value of your property must not exceed the grant threshold
  • Ensure you meet additional requirements if you are buying or selling your property
  • Must pay at least $100 in property taxes 
  • One of the following:

1)  You receive provincial disability assistance, hardship assistance or a supplement under the Employment and Assistance for Persons with Disabilities Act.

2)  You’re disabled or have a disabled spouse or relative living with you in your principal residence and you (a) pay at least $150 per month during the calendar year to help the person with disabilities with daily living activities in your principal residence, (b) have spent at least $2,000 for a qualifying modification to your principal residence, or (c) purchased your principal residence with a qualifying modification completed by a previous owner and the modification cost at least $2,000.


Total grant amount:

  • $845 ($275 on top of regular grant of $570) in Capital Regional District, Greater Vancouver Regional District and the Fraser Valley
  • $1,045 in all other areas of British Columbia


Other information:

Veterans Grant

  • Most veterans can apply for the homeowner grant as a person under 65 (basic grant), senior, or person with a disability.
  • If you have an adjusted net income of $32,000 or less you may qualify for a: Supplement for veterans under 65, Low income grant supplement for seniors, Low income grant supplement for surviving spouses of veterans who received a War Veterans Allowance
  • If you’re under 65 years of age and the surviving spouse of a veteran who received a War Veterans Allowance, you may qualify for a higher grant amount. You qualify if you: Are the surviving spouse of a veteran who received a War Veterans Allowance, and Meet the same requirements for the home owner grant for seniors, excluding the age limit criteria

Deceased Owner

To qualify:

  • Property is still registered in the name of a deceased owner or in the name of the executor or administrator of their estate
  • You’re the spouse, child, grandchild, parent, brother or sister of the deceased owner
  • The deceased owner would have qualified for the home owner grant
  • You occupied the residence as your principal residence on the date of the owner’s death
  • The property is still your principal residence

If the owner’s death occurred in the current year, you’ll receive the amount they would have been entitled to. If the owner would have qualified for an additional grant, you'll be entitled to the extra grant amount regardless of your status.

If the owner’s death occurred in previous years, you’ll receive the amount you qualify for.



Sources:

https://www2.gov.bc.ca/gov/content/taxes/property-taxes/annual-property-tax/reduce/home-owner-grant

UBC Sauder School of Business Real Estate Trading Services Licensing Course Bulletins

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