If you have purchased a home in the past, you have likely heard of the “Property Transfer Tax” in British Columbia. But what is it? How is it calculated?
In most situations, whenever there is a change to a property title, a property transfer tax will be charged by the provincial government. This includes acquiring an interest in a property, acquiring an additional registered interest in a property, or becoming a registered holder of a lease, life estate, or right to purchase the property.
The amount payable is based on the fair market value of the land and improvements (for example, buildings) on the date of registration. The tax is charged at a rate 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
For example, on a property transfer based on a fair market value of $600,000, the tax payable would be $10,000 – $2,000 would be payable on the first $200,000 and $8,000 would be payable on the balance of $400,000.
New rules that were instituted in 2016 provide that an additional 15% property transfer tax must be paid if the purchaser is a foreign entity or taxable trustee and the property is located in the Greater Vancouver Regional District. The writer will not go into further detail regarding the new tax in this blog.
What is the fair market value? The government has determined that this is the price that a willing purchaser would pay a willing seller (land and improvements) in the open market as of the date of registration. In most cases, the purchase price is considered the fair market value provided you register the property within a few months of the date of the sales contract. In the event you do not, you will have to verify that the purchase price does in fact still reflect the fair market value. There might be a difference between the purchase price and fair market value: if a) there was a significant change in the value; b) the condition of the property changed; or c) you did not purchase the property in the open market.
What if you purchase a property from in a non-open market transaction? How do you determine the fair market value then? One way is to obtain an independent appraisal. A second option is to look to the valuation provided by BC Assessment. Be careful how you use the assessment though. The 2016 roll value actually reflects market conditions as at July 1st, 2015, so the assessed value may not accurately reflect the current fair market value of the property when the transfer takes place. You cannot be flippant when it comes to providing the “fair market value” on the property transfer tax return – the government has the right to audit and potentially serve you with a notice of assessment for additional taxes if you have not been forthright in the valuation.
Next blog: What are the exemptions for paying the property transfer tax?