Tax Alert - British Columbia’s budget measures to cool real estate market

February 26, 2018


B.C.’s new NDP government issued their first budget on Tuesday, February 20, 2018. This budget squarely takes aim at the overheated residential real estate market in parts of B.C. by proposing a new speculation tax, increasing taxes on foreign buyers of prime residential real estate, and generally increasing the property transfer tax on residential real estate valued over $3 million.

In addition, changes have been proposed to better track home sales and changes in both legal and beneficial ownership of residential properties.

New speculation tax announced

It is proposed that new legislation be introduced in the fall of 2018 to impose a new annual property tax focused on foreign and domestic residential property owners who do not pay income taxes in B.C. Accordingly, these new rules will apply to individuals who live in other parts of Canada, but who have vacation homes in certain locations in B.C. Non-residents of Canada who do not pay income taxes in B.C. will also be affected.

Effective for 2018 and future years, a tax will be imposed on the assessed value of properties in key geographic areas. The tax rate in 2018 will be 0.5 percent, increasing to 2 percent in 2019. This tax will initially only apply to residential real estate in Metro Vancouver, the Fraser Valley, the Capital and Nanaimo Regional Districts, Kelowna and West Kelowna.

An up-front exemption from this new tax will be provided for most principal residences, long-term rentals and for certain special cases. Details have not yet been provided as to how the property owners will be identified as non-residents of B.C. However, in the event that this new speculation tax is levied on taxpayers who pay income tax in B.C., a non-refundable income tax credit will be allowed against their B.C. income taxes.

Foreign buyers’ tax increased and expanded

A new tax called the Additional Property Transfer Tax, also known as the foreign buyers’ tax, was initially introduced in 2016 at a rate of 15 percent of the fair market value of certain residential properties as of the purchase date. This budget proposes to increase this tax to 20 percent for purchases made after February 20, 2018. In addition, the geographic areas that are affected by this Additional Property Transfer Tax will be expanded to include the Capital Regional District, the Regional District of Central Okanagan, the Fraser Valley Regional District, and the Regional District of Nanaimo. The 2016 tax applied only to the Greater Vancouver Regional District. Transitional measures may apply to purchases finalized after February 20, 2018, which were subject to a contract entered into prior to February 21, 2018, but only for purchases in the newly expanded areas outside the Greater Vancouver Regional District.

Residential property transfer tax rate increased

In addition to these special taxes, property transfer tax rates will generally increase on residential properties valued at more than $3 million. Effective February 21, 2018, a new rate of 2 percent will apply on residential properties valued at more than $3 million. This is in addition to the existing 3 percent rate on residential property values over $2 million. These two rates combine to make property transfer taxes of 5 percent on the value of residential properties over $3 million.

School tax rate increase on properties valued at $3 million or more

Starting in 2019, the rate of school taxes on properties valued at $3 million or more will also increase. Unlike the new speculation tax and foreign buyers’ tax, this school tax increase will apply on properties across the province, including vacant land. This budget proposes that a tax rate of 0.2 percent apply to the portion of residential assessed value that exceeds $3 million, but does not exceed $4 million. Where the assessed value exceeds $4 million, the proposed tax rate will be 0.4 percent.

Improved information about ownership

The B.C. government wants a clearer picture of real estate ownership in the province and wants to crack down on speculators, tax frauds and those involved in money laundering. Taxes on property transfers can only be levied where the transfer is required to be registered. This budget proposes that the Property Tax Transfer form require information about beneficial ownership as well as legal title. In addition, this budget states that legislative amendments will be made to require corporations in B.C. to hold accurate and up-to-date information on beneficial owners in their corporate records. This budget also proposes that a registry of beneficial ownership of land in B.C. be established and be a matter of public record. These measures are designed to show transparency in the land registry records and to assist provincial and federal tax and law enforcement agencies in their investigations.

Another area lacking transparency is the assignment of condominium contracts prior to a sale. This practice allows for contract assignments to be sold and re-sold prior to the condominium unit being occupied, usually with each re-sale being at an increased price. The government proposes to build a registry of pre-sale condominium assignments in order to ensure that tax is paid on each re-sale transaction.

BDO can help

The cost of owning high-value residential real estate in parts of B.C. has just increased.  Please contact one of our trusted Tax advisors at BDO Canada to gain more information on how the real estate proposals in the February 20, 2018 B.C. budget may affect you.

Dave Walsh
Partner, Tax Service Line Leader

Daryl Maduke
Partner, West Group Tax Service Line Leader

Rachel Gervais
Partner, GTA Group Tax Service Line Leader

Peter Routly
Partner, Central Group Tax Service Line Leader

Jennifer Dunn
Partner, East Group Tax Service Line Leader

Learn more about BDO's Canadian Tax Services today.

The information in this publication is current as of February 26, 2018.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.