If you think you may be a foreign buyer, it is very important to make sure that you tell the team in order so that we can help guide you with the correct information and knowledge of any extra costs you may have to expect. Foreign buyers are treated differently at the times of purchase and sale. There are extra costs associated with the purchase and a hold back of up to 50% can be held during the time of sale.
Additional Property Transfer Tax for Foreign Entities & Taxable Trustees at the time of Purchase
In addition to the property transfer tax, if you are a foreign national, foreign corporation or taxable trustee, you must pay the additional property transfer tax on your proportionate share of a residential property transfer if the property is within specified areas of B.C.
Your proportionate share is the percentage of interest that you are registering on title with the Land Title Office. For example, if you are a foreign entity (foreign national or foreign corporation) acquiring a 70% interest in a property, you pay the additional property transfer tax on 70% acquired interest.
Tax Amount and Specified B.C. Areas
If the property transfer is registered on or after February 21, 2018 and is within the following areas, the tax amount is 20% of the fair market value of your proportionate share:
- Capital Regional District
- Fraser Valley Regional District
- Metro Vancouver Regional District
- Regional District of Central Okanagan
- Regional District of Nanaimo
The additional property transfer tax doesn’t apply to properties located on Tsawwassen First Nation lands.
Additional Tax at the time of Sale
The Income Tax Act of Canada provides that whenever a non-resident disposes of property, the non-resident is required to pay the appropriate amount of taxes on any gain. In order to satisfy the Buyer that the appropriate amount of taxes are paid, the Seller must provide to the purchaser, on or before closing, a clearance certificate from Revenue Canada. This certificate is issued by the federal government and certifies that a certain amount of money is payable for the taxes. The amount owing is deducted from the sale proceeds and sent directly to the federal government by the Seller’s lawyer.
The clearance certificate is required on the closing date. The application for the certificate may be made prior to closing by the Seller, but not until there has been a subject free contract of purchase and sale. The wait for the clearance certificate is usually around 3 months, so in a perfect world, there would be a 3-month lead-time between subject removal and the completion date.
Complications can arise if the certificate is not obtained prior to the closing date. In such a case, the Buyer is required to hold back from the sale proceeds a percentage of the selling price. This percentage is between 25% and 50%, depending on whether the property is non-depreciable property (a residence of the Seller), depreciable property (the property has been rented), or inventory (Seller is a builder). The transaction closes with the money remaining in a lawyer’s trust account until the certificate is obtained. Once the certificate is obtained, the taxes are paid from the holdback and the Seller receives any amount left over.