Property Transfer Tax and the First Time Buyer Exemption
What is Property Transfer Tax?
This is a provincial tax (BC) that the BUYER pays and it is calculated on the purchase price of the home. The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000. For example, if the fair market value of a property is $350,000, the tax paid is $5,000. Ouch!--that's a lot of money and for the young person gathering their pennies (ahem, loonies) in order to scrape together a down payment this Property Transfer Tax (PTT) can put the brakes on the dream of home ownership!
The government decided to be nice guys and help out those First Time Homebuyers. What? How? Well, my friends, read on...
What is the First Time Homebuyer's Exemption?
Recognizing that the PTT would be an obstacle to home ownership, the provincial government provided an exemption for 'first time' home buyers. Being a 'first timer' isn't the only qualification though, read on for more information.
Do I qualify?
Here are some of the major criteria for qualifying for the exemption but please remember that I'm only a mere human, not a lawyer or government agent, and so you can't rely on this information 100% (that's my legal disclaimer) so please access the website (see links below) for more information, and talk to your notary or lawyer.
1. You have never owned a principal residence anywhere in the world.
Yes, you read that correctly...anywhere in the world...but the key words here are 'principal residence,' which is defined as a place where an individual normally resides. If you are, or have been, a registered owner of an investment property; or if you've been on title to your parent's home and in either case didn't occupy the home as your principal residence then you still qualify.
2. You have lived in BC for 12 consecutive months immediately before the date you register the property, or you have filed 2 income tax returns as a BC resident during the 6 years before the property registration date.
Darn, you're so close to being here for a whole year...only 2 more months and you'd qualify. No problem, you can still shop for and buy a home but just make sure that you delay your closing date of purchase for 2 months (which is a typical closing period anyway).
3. You are a Canadian citizen or permanent resident
If you're not sure if you're a permanent resident, see the Immigration and Refugee Protection Act (Canada),
4. You have never received a first time home buyers’ exemption or refund.
What price range qualifies for the exemption?
What matters is not what kind of home you buy --an attached home (like a condo, townhouse or duplex), or a detached home (such as a freestanding home)-- but rather what price you pay. The fair market value of the home you purchase must be less than $475,000.00. That can be a tough one in high priced areas like Vancouver but if you move out towards the valley (become a Valley girl or boy--um, like you would totally love it in the Val!) it's possible to get you into a detached home for that price, and most definitely a really nice townhouse or condo! In order to receive a full exemption on your PTT, the purchase price must not exceed $475,000.00, but don't despair if you've paid a little more than that as there is a partial exemption for properties valued between $475,000.00 and $500,000.00. Yay! If you go over $500,000.00 though, I'm sorry, you're out of luck and will have to pay the PTT.
How do I apply?
Your lawyer or notary will complete the First Time Home Buyers’ Property Transfer Tax Return as part of the conveyancing/legal work and you will sign the appropriate documentation when you meet with him/her.
At the end of the first year after your purchase you'll receive a letter from the government asking you to confirm that you moved in within 92 days of transfer of title and that you occupied the property as your principal residence for the remainder of the first year. If you did not move in within 92 days, you will be charged the tax. If you moved out within the first year you will be charged for a pro-rated portion of the tax. If, heaven forbid, you pass away or the property is transferred pursuant to a separation agreement or court order, you still keep the exemption.
What happens if I fib a little?
Yeah, so that's not a great idea. If the government finds out that you made a false declaration about previously owning property anywhere in the world at any time, or about previously receiving a BC first time home buyers' tax exemption or refund, then they are going to slap your wrists. HARD! Be prepared to face a penalty of an amount equal to double the tax (the tax you owe plus a penalty equal to the exemption or refund you claimed).
I had a situation where a client, a first time homebuyer here in Canada, had a question about whether or not she qualified for the exemption based on the fact that she was on title (only briefly) in a foreign country, and only occupied the home for two weeks. We discussed this situation with a representative of the Property Transfer Tax division and his advice was: "When in doubt, pay it out."
What if I forgot to apply when I purchased?
Well then, lucky you, you might qualify for an exemption! If you met all the criteria but didn't apply when you registered your home, you can apply for a refund as long as you do it within 18 months of the date that you registered the property ('registering' means the day that title transferred into your name). Also, if you became a Canadian citizen or a permanent resident within 12 months of the registration date and, on the registration date, you met all the other qualifications for the exemption. Contact (250) 387.0604 to apply.
Property TRANSFER tax is not property tax. You pay property tax on an annual basis for services you receive from your local government.
Websites for more information:
First Time Homebuyer's Program
Immigration and Refugee Protection Act
Thanks for reading, I hope you found this information helpful! Remember to use a REALTOR® whether buying or selling --we can make the process much nicer for you!
Take care! Next week's topic: Renovations (ugh, gag me with a spoon--or a kitchen, a bathroom, or flooring)