British Columbia Levies 15% Tax on Foreign Buyers of Residential Real Estate

This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.

Author: Saravan Veylan

Ostensibly in response to concerns over housing affordability in the Greater Vancouver Regional District, on July 28, 2016, the Legislative Assembly of British Columbia passed Bill 28, which includes amendments to the Property Transfer Tax Act (British Columbia) that, effective August 2, 2016, levy an additional 15% tax on foreign buyers of residential real estate in the GVRD.

Who is subject to the additional tax?

The additional tax applies to both “foreign entities” and “taxable trustees”, as such terms are defined in the amendments to the Act. In essence, the additional tax applies to any buyer of residential real estate who is not a Canadian citizen or permanent resident, including a corporation that is not registered in Canada or is controlled by one or more foreigner entities and a trustee that is a foreign entity or is a trustee on behalf of a beneficiary who is a foreign entity. As a matter of particular concern to buyers of pre-sale properties, a foreign buyer who entered an agreement of purchase and sale before August 2, 2016 that has not closed before such date is not exempt from the additional tax.

A foreign corporation includes any corporation that was not incorporated in Canada. A private Canadian corporation will also be considered to be a foreign corporation if it is controlled by certain foreign parties, including one or more of: (i) a foreign national; or (ii) a corporation that is not incorporated in Canada. Control of a corporation may be difficult to determine in some situations because the amendments to the Act contemplate both legal control through the ownership of voting shares, as well as more general control based on the surrounding facts and circumstances.

What is the rate of the additional tax?

The additional tax will be levied at a rate of 15% of the Fair Market Value (as defined in the Act) of the interest in the land being purchased, in addition to other property transfer tax payable under the Act, and must be remitted with the filing of the transfer of the interest in the property in the Land Title Office.

What type of property is subject to the additional tax?

The additional tax applies to land or improvements used for residential purposes, including single family, detached residences, duplexes, multi-family residences, apartments, condominiums, and rental apartments with long term occupants. The additional tax also applies to farm houses, in particular any area of land (without improvements) that is: (a) not larger than 0.5ha in area; and (b) classified as a farm under the Assessment Act (British Columbia) only because the land is used for (i) an owner’s dwelling or (ii) a farmer’s dwelling. In a mixed use building, the additional tax applies to the residential component of that building.

What penalties may accrue in a failure to pay the additional tax as required under the Act?

The amendments to the Act attempt to prevent foreign entities from avoiding the additional tax by setting out a general anti-avoidance rule, targeting and closing specific loopholes, such as trust arrangements and exemptions for amalgamations, and establishing significant non-compliance penalties. Under the general anti-avoidance rule set out in Section 2.04 of the Act, if a transaction is structured in a way to reduce, avoid or defer payment of the additional tax, the transaction can be reviewed and the parties assessed the additional tax. In that case, the amendments to the Act grant the administrator appointed under the Act the authority to determine and impose an amount of additional tax that is “reasonable in the circumstances” (Section 2.04(3)).

An individual who fails to pay the additional tax or who participates in providing incorrect information to avoid the tax could be liable for fines of up to $100,000 and/or two years in prison. A corporation that fails to pay the additional tax or that participates in providing incorrect information could be liable for a fine of up to $200,000.