REAL ESTATE FORUM


TAX LIABILITIES IN REAL ESTATE

PROPERTY TRANSFER TAX 
 
Currently, Buyers of residential properties has to pay Property Transfer Tax equal to the total of the following:
1)  1% on the first $200,000 of the fair market value of the Property;
2)  2% over $200,000 but under $2,000,000;
3)  3% over $2,000,000 but under $3,000,000;
4)  5% over $3,000,000; plus
5)  An additional Property Transfer Tax equal to 20% of the fair market value of the Property if the Buyer is a "Foreign Entity" or a "Taxable Trustee" as defined in the British Columbia Property Transfer Tax Act (as amended) on the Completion Date..

Buyers are advised to seek independent legal consultation in regards to their citizenship or resident status, and their liability to pay the required Property Transfer Tax.
 
FOREIGN SELLER

Foreign Sellers must obtain a Clearance Certificate from Canadian Revenue Agency (CRA) to confirm their tax liability that may arise from the sale of their property.  Without the Certificate, the Buyer's lawyer or notary is obligated to withhold an amount from the sale proceeds in anticipation to pay the Seller's taxes due to CRA.  This "Withholding Tax" is normally calculated at 25% of the sale price, or 25% of the land value plus 50% of the building value, depending on the nature of the property.

Two major issues to be aware of:
1)  The Seller must have enough funds to pay out any outstanding mortgages or charges on title after the Withholding Tax.
2)  The obligation to withhold the Seller's taxes payable is imposed on the Buyer.
 
ASSIGNMENT OF CONTRACT 
 
GST
The Buyer assumes the Contract and will pay GST on the original contract price, but who pays GST on the the "Lift"?

PROPERTY TRANSFER TAX
The Buyer pays PTT on the Original Contract Price or on the Assignment Price (Contract Price + Lift)?
 
FOREIGN ASSIGNOR
Withholding Tax must be made by the Assignee under S.116 of the Income Tax Act?

Assignment contracts can be very complex.  We highly recommend obtaining legal advice prior to entering into an Assignment of Contract, and be fully aware of the associated risks, tax consequences and the timing of the release of funds.
 
 
NEVER LIVED IN PROPERTY
 
GST may be payable by the Buyer, even if the Seller had already paid GST when he/she first purchased the property.
 
 
__________________________________________________________________________________
The information above is not, nor is it intended to be legal advice.  Readers should consult a lawyer, tax accountant or other professional experts for independent advice regarding their own situation. 
04 10 2020