Additional Property Transfer Tax on Foreign Entities

(August 02, 2016)

While this new tax is not yet applicable on the Sunshine Coast it could have a great impact on the interest in real estate here. The Vancouver real estate market is already buzzing with this change and the coast could definitely be an alternative market for people to avoid this tax. On the downside, a softening in the Vancouver market could impact us on the Sunshine Coast. If you have additional questions, please feel free to call me 604.885.7810 or email: kenan@kenamackenzie.com

Property Transfer Tax Act

Effective August  2, 2016, an additional property transfer tax applies to residential property  transfers to foreign entities in the Greater Vancouver Regional District.

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.

The additional tax applies on all applicable transfers  registered with the Land Title Office on or after August 2, 2016, regardless  of when the contract of purchase  and sale was entered into.

Foreign Entities

Foreign entities are transferees that are foreign nationals,  foreign corporations or taxable trustees.

Foreign nationals are transferees who are not Canadian citizens or permanent residents, including stateless persons.

Foreign corporations are transferees  that are corporations:

•    not incorporated in Canada  or
•    incorporated in Canada, but controlled  in whole or in part by a foreign national or other foreign corporation, unless the shares of the corporation are listed on a Canadian stock exchange

Taxable trustees are trustees  that are a foreign national or foreign corporation, or a beneficiary of a trust that is a foreign national or foreign corporation.

Applying the Additional Tax

The additional  tax on property transfers to foreign entities is 15% of the fair market value of the foreign entity's proportionate share of a residential  property located in whole or in part in the Greater Vancouver Regional District, excluding Tsawwassen First Nation lands.  This tax applies in addition  to the general property transfer tax.

The additional  tax does not apply to non-residential property. The value of the residential portion of a transfer is calculated in the same way as for the property transfer tax.

The additional  tax applies on the foreign entity's  proportionate share of any applicable residential property transfer, even when the transaction may normally  be exempt from property  transfer tax.  This includes transactions such as:
•    a transfer between  related individuals
•    a transfer resulting  from an amalgamation
•   a transfer to a surviving joint tenant
•   a transfer where the transferee is or becomes a trustee in relation to the property, even if the trust does not change

The additional  tax does not apply to trusts that are mutual fund trusts, real estate investment  trusts or specified investment flow-through trusts.

Filing and Paying the Additional Tax

Filing the Return

Foreign entities registering a transfer, or their legal representative, must file an Additional Property Transfer Tax Return (FIN 532). The return  must be filed at the time the property  transfer is registered  with the Land Title Office. Filing instruction can be found on the return, or at gov.bc.ca/propertytransfertax on the File Your Taxes page.

Paying the Additional Tax

The additional  tax must be paid with the general property  transfer tax at the time the property  transfer is registered with the Land Title Office.

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.

Tax Avoidance

All property  transfer transactions  are subject to audit and all additional property transfer tax returns will be reviewed and verified.  The audit period is six years from the date the transfer is registered  at the Land Title Office.

Where transactions involve Canadian citizens, the Canadian citizen's social insurance number must be collected and their identification verified against official government issued identification such as a Canadian passport. Invalid social insurance numbers or other discrepancies on a return will lead to an audit and investigation of the transaction.

Anti-avoidance provisions  exist and will be enforced to ensure all foreign entities report and pay the additional tax as required, including examining circumstances  where Canadians hold property in trust for a foreign entity or are trustees where a beneficiary may be a foreign entity.

Failure to pay the additional tax as required or purposely completing  the general or additional property transfer tax return  with incorrect or misleading information may result in a penalty of the unpaid  tax plus interest and a fine of $200,000 for corporations or $100,000 for individuals and/or  up to two years in prison.  The penalties apply to anyone who participates in tax avoidance.

Property  transfers will be monitored for compliance and the province will follow up with those businesses  or individuals filing incomplete or incorrect general or additional property transfer tax returns.