Update on amendments to the Property Transfer Tax Act

The government of British Columbia has introduced Bill 28 – 2016 Miscellaneous Statutes (Housing Priority Initiatives) Amendment Act, 2016 (“Bill 28”) which will amend the Property Transfer Tax Act (British Columbia) (the “Act”) to require that foreign nationals, foreign-controlled corporations and certain trustees, pay an additional 15% property transfer tax (the “Additional Transfer Tax”) when purchasing residential property in the Greater Vancouver Regional District.  

1. Who is subject to the Additional Transfer Tax?

The Additional Transfer Tax will apply to transactions involving a “foreign entity”, which the Act defines as both a “foreign national” and a “foreign corporation”.  Foreign nationals are defined in the Act as persons who are not Canadian citizens or permanent residents of Canada.  Foreign corporations are defined as corporations that are not incorporated in Canada, or corporations that are incorporated in Canada, but are not listed on a Canadian stock exchange and are controlled (directly or indirectly) by a foreign national, another corporation that is not incorporated in Canada or another corporation that is controlled by a foreign national.  The end effect is that a foreign entity cannot use a shell corporation in an attempt to circumvent the requirement to pay the Additional Transfer Tax.

The Additional Transfer Tax will also apply to trust arrangements, including bare trusts, where the trustee is a foreign entity or the trustee is not a foreign entity but the beneficiary of the trust is a foreign entity.  Mutual fund trusts, real estate investment trusts and SIFT trusts will not be subject to the Additional Transfer Tax.

In situations where there is more than one transferee of a property, and not all the transferees are either a foreign entity or a taxable trustee, then the Additional Transfer Tax will apply only to the value of the foreign entity or the taxable trustee’s proportionate share of the fair market value of the property.

2. When does the Additional Transfer Tax come into effect?

While Bill 28 has only received first reading and has yet to come into force, the provisions with respect to the Additional Transfer Tax take effect as of August 2, 2016.  Accordingly, the Additional Transfer Tax will apply to transactions that complete on or after August 2, 2016, irrespective of when the purchase agreement was entered into.    

3. Types of transactions subject to the Additional Transfer Tax

The Additional Transfer Tax will only apply to transactions involving residential property. Residential property transactions are (subject to certain exceptions and exclusions) any transaction involving land or improvements, or both, used as single family residences, duplexes, multi-family residences, apartments, condominiums, manufactured homes, nursing homes, rest homes, and summer or seasonal homes.  Land that includes both residential property and non-residential property will only be subject to the tax for that portion of the land that is residential.

4. Geographic scope of the Additional Transfer Tax

The Additional Transfer Tax will only apply to residential property transactions located in the Greater Vancouver Regional District, but excluding the treaty lands of the Tsawwassen First Nation.  The Act provides that additional areas can be included by regulation so that residential properties in such areas are subject to the Additional Transfer Tax.

5. Total rate of Property Transfer Tax for Foreign Entities

The Additional Transfer Tax that will be imposed on a foreign entity will be in addition to the property transfer tax that is currently imposed on residential properties under the Act.     Therefore, a property worth $4,000,000 purchased by a foreign entity would have previously been subject to a property transfer tax of $98,000; beginning August 2, 2016, that same property purchased by a foreign entity or taxable trustee will be subject to total  property transfer tax of $698,000.

6. Increased penalties for tax avoidance

The amendments to the Act set out in Bill 28 include increased penalties for avoiding the Additional Transfer Tax.  Corporations that fail to pay the Additional Transfer Tax, or that fill out inaccurate information on their transfer tax form for the purpose of avoiding paying the Additional Transfer Tax, will be subject to fines up to $200,000.  For individuals, the maximum fine is $100,000, imprisonment up to two years, or both.

The amendments to the Act set out in Bill 28 are also designed to make it more difficult for trusts to be used as a method of avoiding payment of the Additional Transfer Tax.  In any “avoidance transaction”, defined as a transaction or a series of transactions done to achieve a reduction, avoidance or deferral of the Additional Transfer Tax, the Ministry of Finance will have the authority to deny that reduction, avoidance or deferral and have the foreign entity pay the Additional Transfer Tax in whole.  For example, a transferee who would otherwise be subject to the Additional Transfer Tax cannot use a local trustee to avoid paying the Additional Transfer Tax.  Furthermore, Bill 28 amends the Act to provide for a six year limitation period for auditing and enforcing the Additional Transfer Tax provisions, a significantly longer period than the one year limitation period for taxable transfers involving Canadian citizens or permanent residents.

7. Further amendments

Bill 28 will also revise the Act to provide that regulations may be enacted that can increase the Additional Transfer Tax to a maximum of 20% or decrease the rate to a minimum of 10%, or that create exceptions to the definition of foreign entity. 

Authored by Alex Fane.