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Ian Watt Personal Real Estate Corporation - Sotheby's International Realty Canada

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Property Transfer Tax

PROPERTY TRANSFER TAX

 

Introduced in 1994, the First Time Home Buyers Program is designed to help British Columbians purchase their first home. Under the program, eligible purchasers can claim an exemption from Property Transfer Tax if the fair market value of the home is less than the threshold amount.

 

Who Qualifies for the Exemption?

 

 

To qualify for the FTHB exemption, the transferee (purchaser) must be all of the

following:

  • a Canadian citizen or a permanent resident as determined by Immigration

Canada ,

  • a person who has resided in British Columbia for 12 consecutive months

immediately prior to the date of registration of the transfer, or who has filed

two income tax returns as a British Columbia resident within the last

six years

  • a person who has never, at any time, held a registered interest in a principal

residence anywhere in the world (a principal residence is defined as the

usual place where an individual resides), and

  • a person who has not previously received an FTHB exemption or refund.

 

What Property Qualifies for the Exemption?

 

 

The FTHB program provides a full exemption from property transfer tax only on

properties where:

 

  • the improvements on the property become the principal residence (whether

or not they are formally classified as residential),

  • the land is 0.5 hectares (1.24 acres) or smaller, and

First Time Home Buyers’ Program

  • the value of the land plus improvements falls below the set threshold amount

of $425,000.

 

The current threshold amount applies to purchases registered on, or after,

 

February 20, 2008.

 

 

Partial Exemption

 

 

Partial exemptions from property transfer tax are available in certain

circumstances.

Where part of the improvements on the land are used for purposes other than

the purchaser’s primary residence, such as where part of the improvement is used

for commercial purposes or where there is a separate dwelling or residential

improvement on the land, only the portion that is the purchaser’s primary

residence is eligible for the exemption.

 

Where the land is larger than 0.5 hectares, only the residential improvement and

0.5 hectares of the land are eligible for the exemption.

 

For example, a one hectare vacant parcel of land is purchased. Only 0.5 hectares is

eligible for the exemption. The fair market value of entire parcel is $100,000. The

partial exemption is calculated as follows:

 

Fair Market Value        x 0.5 (hectares)

Total Area of Parcel

(in hectares)

 

100,000 x 0.5 (hectares) = $50,000

 

In that example, $50,000 of the value of the property would be eligible for the

exemption.

 

Where a property has a fair market value of up to $25,000 more than the

threshold amount, the property is eligible for a partial exemption.

 

For example, for a property with a fair market value of $445,000, the partial

exemption is calculated as follows:

 

Fair market value of property                            $445,000

 

Tax at 1% of the first $200,000

and 2% on the remainder                                  $6,900

 

Partial exemption calculation:

 

6,900 x (425,000 + 25,000 – 445,000)            -$1,380

25,000

 

Tax Payable                                                     =$5,520

 

 

Financing Requirements

 

 

If a property purchase is registered on, or after, February 20, 2008, the purchaser is

no longer required to meet any financing requirements to qualify for the FTHB

program.

 

If a property purchase is registered before February 20, 2008, the purchaser must

meet the financing requirements that were in place when he or she purchased the

property. However, effective February 20, 2008, all purchasers (including persons

who purchased their property before February 20, 2008) are free to pay down any

amount owing on their mortgage. For details, please see the section below,

Requirements that must be met during the first year the property is owned.

 

When May the Exemption or Refund be Claimed?

 

 

The purchaser may claim the exemption by submitting a First Time Home Buyers’

Property Transfer Tax Return form (FIN 269) and other required documents (as

outlined in the FTHB instruction guide) when he or she registers the property at

the Land Title office.

 

If the purchaser does not apply for the exemption when the transfer is registered at

the Land Title office, and the other conditions for the FTHB program are met, the

purchaser may apply for a refund.

 

A refund is also available where a purchaser is not a permanent resident of

Canada at the time of registration, but obtains permanent resident status within

12 months of the date the transfer was filed at the Land Title office.

 

An application for refund of the tax paid must be made within 18 months of the

date the transfer was filed at the Land Title office.

 

Requirements that Must be Met During the First Year the Property is Owned

 

 

Occupancy Requirement

 

 

The purchaser must occupy the residence as his or her principal residence within

92 days of the transfer being registered at the Land Title office. To be eligible for

the full exemption, the purchaser must then continue to use the residence as his or

her principal residence for at least one year after the date the transfer was

registered.

 

At the end of the first year the ministry will send a letter to the purchaser asking

for information to confirm that the property is still his or her principal residence.

A purchaser who ceases to maintain the residence as his or her principal residence

prior to the first anniversary of the registration date may be eligible for a prorated

exemption based on the date the purchaser moved off the property.

Exceptions

 

If the purchaser dies prior to the first anniversary of the registration date, the

occupancy requirement is no longer imposed and the exemption continues to

apply. The exemption also continues to apply if the property is transferred in

accordance with a court order or separation agreement under the Family Relations Act.

 

Construction Requirement

 

 

If  the property purchased is vacant land, and the purchaser wants to claim the first

time home buyers’ exemption, a principal residence must be built on that land

within one year after the transfer is registered, and the purchaser must then reside

on the property for the remainder of that year to receive the full exemption.

To be eligible for the full exemption, the fair market value of the land plus the cost

to build the home cannot exceed the threshold amount of $425,000. A partial exemption is available where the total value of the land plus the cost of the improvement exceeds the maximum allowable fair market value by up to $25,000.

 

Mortgage Paydown Requirements

 

 

The mortgage paydown requirements described in this section are not applicable

to property purchases registered on, or after, February 20, 2008. Also, the

mortgage paydown requirements described in this section are not applicable to

property purchases registered before February 20, 2008, and paid down on, or after,

February 20, 2008. For property purchases registered prior to February 20, 2008, and paid down before February 20, 2008, the requirements with respect to how much the financing may be reduced during the first year the purchaser owns the property are outlined in the following sections.

 

These restrictions apply to all types of financing, including readvanceable

mortgages and lines of credit. All payments made against the principal amount of the mortgage (both regular and lumpsum payments) are used to determine how much the mortgage has been reduced.

 

Sometimes the type of financing used, such as a readvanceable mortgage or a line

of credit, enables the purchaser to borrow money in addition to the money

borrowed to finance the home.

When calculating how much the mortgage has been reduced, only the amounts

borrowed to finance the home are considered.

 

At the end of the first year after the exemption is claimed, the ministry sends the

home owner a letter as part of a routine followup procedure. The home owner

must return the completed letter to the Property Transfer Tax office in order to

maintain their eligibility for the exemption.

 

If the property purchase was registered before February 20, 2008, the home

owner may also be asked to provide a complete history of their mortgage

account up to February 20, 2008.

 

 

 

Exception

 

 

If a mortgage is reduced before February 20, 2008 beyond the allowable paydown

limit as a result of the proceeds from a life or critical illness insurance policy, the

mortgage paydown restriction is not imposed and the exemption continues to

apply. However, the insurer must pay the proceeds directly to the lender as a

term and condition of the policy.

 

A prorated exemption is available where a purchaser reduces the eligible

indebtedness below the allowable limit before February 20, 2008. The prorated

exemption is based on the date the mortgage was paid down below the required

level of financing.

 

Where a prorated exemption is available, the proration is applied to the

obligation that is broken first (either the oneyear occupancy requirement or the

oneyear mortgage paydown restriction).

 

Mortgage Paydown Limits

 

 

A mortgage cannot be reduced before February 20, 2008 by more than the greater

of:

  • $13,000, and
the amount that would reduce the mortgage to 70% of the fair market

 

value of the property (calculated on the date the application is made to

 

register the transfer at the Land Title office).

 

 

EXAMPLE

 

 

Mortgage of 70% Mortgage of 80%

Value of property $375,000 $375,000

Amount of mortgage $262,500 $300,000

Maximum amount by which the

mortgage may be reduced $13,000 $37,500

Please note: The maximum limits include the total of all regular and lumpsum

principal payments.

 

Penalty for False Declaration

Every application for the exemption or refund is reviewed to verify eligibility.

If a purchaser applying for an exemption or refund makes a false declaration with

respect to whether he or she has either previously been on title to a residence in

which they resided, or previously obtained a first time home buyers’ exemption or

refund, the Administrator denies the exemption and the purchaser is assessed a

penalty in addition to the tax payable.

The penalty is equal to the amount of the exemption or refund claimed by the

purchaser.

Administrative Steps to Claim the Exemption

Ensure all the required steps are taken when a purchaser claims the first time

home buyers’ exemption to avoid confusion and processing delays.

 

The following information highlights areas where purchasers claiming the

exemption commonly make errors.

 

First Time Home Buyers’ Property Transfer Tax Return

 

Any purchaser claiming this exemption must complete the tax return specifically

designed for the exemption. If a computer generated tax return form is used, it

must be stapled to the back of the original blue return form.

 

The First Time Home Buyersʹ Property Transfer Tax Return requires the purchaser to

provide information verifying that he or she meets all the requirements for the

exemption. Anyone seeking assistance when completing the FTHB tax return may

contact the Property Transfer Tax office at 250 3870604.

 

The purchaser must certify, by signing the return, that he or she meets all the

requirements for the exemption. Read this section carefully before signing.

 

Specific Sections of the Tax Return Form

 

Many of the sections in the FTHB tax return are the same as those in the general

and special tax returns that are also in use. However, several sections are unique

to the FTHB tax return and attention should be paid to ensure they are completed

correctly. The following information helps a purchaser complete sections A, B, E,

F and H of the return.

 

Section A

 

Section A requires information about the person purchasing the property (the

transferee). This section requires that every purchaser acquiring an interest in the

property be identified. List the purchaser(s) who qualify for the exemption before

those who do not qualify for the exemption.

 

The form also requires that each purchaser acquiring an interest in the property

state the percentage of his or her ownership. If more space is needed to complete

this section, an additional sheet may be attached.

 

The mailing address for the property that is being purchased must be completed in

each case. If the Administrator has to contact the purchaser to confirm or obtain

more information, this address is used.

 

Section B

 

Section B requires each purchaser claiming the exemption to provide information

about where he or she lived for the two years immediately before the purchase.

Purchasers claiming the exemption who did not reside in British Columbia for at

least one year immediately prior to the purchase should complete line 3 in

section G. If more space is needed, an additional sheet may be attached.

Section E

 

Section E requires the purchaser to provide information on the financing terms of

the purchase.

 

Sections F and H

 

Section F calculates the amount of property transfer tax payable if the exemption is

claimed. Section H determines the partial principal residence calculation, where it

is required for section F.

 

Example 1 – Residential Improvements on Less than 0.5 Hectares

 

This example shows how to complete section F when the property purchased is

less than 0.5 hectares and all improvements are residential.

 

Facts:

 

  • 3 purchasers, each purchasing a 1/3 interest in the property; 2 are eligible for

the exemption, therefore 66.67% of the tax is exempt

  • the fair market value is $250,000

 

Facts:

 

  • 2 purchasers, each purchasing a 1/2 interest in the property; 1 is eligible for

the exemption, therefore 50% of the tax is exempt

  • the property is 3.9 hectares, the land value is $245,000, the improvement

value is $200,000 and is residential, and the fair market value is $445,000

 

 

Need more info?

 

Telephone ( Vancouver ): 604 6602421

Telephone ( Victoria ): 250 3870604

Toll free in Canada : 1 800 6637867 (request a transfer to 250 3870604)

Email: PTTENQ@gov.bc.ca

The information in this bulletin is for your convenience and guidance and is

not a replacement for the legislation. The Property Transfer Tax Act and

Regulations are on our website at www.sbr.gov.bc.ca/individuals

/Property_Taxes/property_taxes.htm

 

www.gov.bc.ca/sbr

 

ISSUED: March 1994 REVISED: February 2008