The tax one must always consider when purchasing or acquiring any real estate in BC is the Property Transfer Tax. For more information about what it is and how it is calculated, click on the following link:
http://www.dbmrealestatelaw.com/property-transfer-tax/
But a first time homebuyer may qualify for a complete or partial exemption of the property transfer tax.
1.What are the Conditions To Qualify for the First Time Homebuyer Exemption
You qualify for an exemption of the property transfer tax as a first time home buyer if:
- you are a Canadian Citizen or a Permanent Resident;
- you have lived in BC for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a B.C. resident in the last 6 years;
- have never owned an interest in a principal residence anywhere in the world at any time;
- you have never received a first time home buyers’ exemption or refund;
- the property you are buying is located in BC;
- the property will only be used as your principal residence;
- the fair market value of the property is $500,000 or less (if the fair market value of the property is higher than $500,000.00 but less than $525,000.00, you qualify for a partial exemption); and
- the land is 0.5 hectares (1.24 acres) or smaller
To ensure you continue to qualify for the tax exemption, you must do the following:
- you must move into the property within 92 days of the date the property was registered; and
- you must continue to occupy the property as your principal residence for the remainder of the first year.
2.What If I am Not a Canadian Citizen or a Permanent Resident?
If you are not a Canadian citizen or permanent resident at the time of registration, you will have to pay the property transfer tax. This tax is in addition to the Additional Property Transfer Tax. For more information, please click on the following link:
http://www.dbmrealestatelaw.com/bc-property-transfer-tax/
But if you become a Canadian citizen or permanent resident within 12 months of when the property is registered (and you had met all the other requirements at the time of registration), you may apply for a refund of the property transfer tax. To apply for a property transfer tax refund in this case, call 1-250-387-0555.
3. What If I Just Moved to BC?
To qualify for an exemption, you must have lived in BC for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a B.C. resident in the last 6 years. If you just recently moved to BC filed and did not file at least 2 income tax returns as a B.C. resident in the last 6 years, you will have to pay the property transfer tax. If possible, I would suggest you wait the full 12 months of living in BC before buying real estate.
If you were from BC, moved out of the province (whether it’s to Calgary or Paris), and then recently moved back to BC, you may qualify for the exemption if you filed at least 2 income tax returns as a B.C. resident in the last 6 years. Not everyone is sure about that, so you may want to check with your accountant. Or be on the safe side. If possible, I would suggest you wait the full 12 months of living in BC before buying real estate.
4. What If I Owned Property Before?
To qualify for an exemption, you must have never owned an interest in a principal residence anywhere in the world at any time. It does not matter if you owned that principal residence in Vancouver or in Miami. It does not matter if you owned that principal residence a couple years ago or several decades ago.
A principal residence is the usual place that a person makes their home.
If a person owns more than one home, they can’t designate which one is their principal residence. Their principal residence is where they live and conduct their daily affairs, like paying bills and receiving mail, and it’s generally the residence used in government records for things like income tax, Medical Services Plan, driver’s license and vehicle registration.
You will be charged a penalty equal to double the tax if you falsely declare that:
- you have never owned an interest in a principal residence anywhere in the world at any time, or
- you have never received a first time home buyers’ exemption or refund
5. I am Buying a Home With my Spouse. I am a First Time Home Buyer, but My Spouse is Not. What to do?
If one buyer qualifies as a First-Time Home Buyer, only the percentage of interest that the first-time home buyer has in the property is eligible for an exemption. If the other buyer does not qualify, the percentage of interest that the other buyer has in the property is subject to property transfer tax.
6. I am Buying a Home With my Spouse. I am a First Time Home Buyer, but My Spouse is Not. We are buying a home and the purchase price is $600,000.00. I will be the registered owner of an undivided 1/2 interest in this property, so I am really paying $300,000.00. I know that to qualify for an exemption (complete or partial) of the property transfer tax as a first time home buyer, the fair market value of the property must $525,000 or less. Do I qualify for the exemption?
NO. The Fair Market Value threshold as set by the provincial government is based on the fair market value of the entire property, not a person’s specific share in that property.
7. I am Buying a Home with my Spouse, where we are both first time homebuyers. Can we buy our first home under my name, and then buy the second home where my spouse can take advantage of the First Time Homebuyer exemption?
Many couples attempt to do this and for a good number of them, it works out. But there are a few issues to consider before taking that step:
- If there will be only one registered owner on that property, that person will be the sole borrower of the mortgage. Discuss with your mortgage broker or mortgage specialist whether it is possible that only one of you can qualify for a mortgage. Sometimes, the mortgage lender will require the other spouse to be the guarantor/covenantor of the mortgage, which may require independent legal advice. Extra legal fees and other costs will then apply.
- If there will be only one registered owner on that property, if that person passes away, the property will go to the beneficiaries in their will. Accordingly, make sure you make wills or update your wills to ensure that this new property goes to the proper beneficiaries. Furthermore, you should meet with a family lawyer to prepare and execute a cohabitation/marriage agreement, outlining various issues regarding the ownership, maintenance and eventual sale of the property.
- Although buying your first home is daunting enough, you may want to discuss with your realtor what your ideal second home would look like. For many people, when people buy their second home, the new home tends to be bigger in size, situated in a more desirable neighbourhood, and contain more amenities—and be more expensive. Remember, to qualify for an exemption of the property transfer tax as a first time home buyer, the fair market value of the property must be $500,000 or less (if the fair market value of the property is higher than $500,000.00 but less than $525,000.00, you qualify for a partial exemption). Although those amounts have changed over the years, they have certainly not changed in step with rising real estate prices.
There are practical benefits to a couple owning property together, and owning it as Joint Tenants. See our blog post about Joint Tenancy and Tenancy In Common:
http://www.dbmrealestatelaw.com/joint-tenancy-vs-tenancy-common/
Conclusion
As you can see, there are a lot of requirements to qualify for the First Time Homebuyer Exemption of the Property Transfer Tax. If you have any questions about this post, please contact Lewis Nguyen at lewis@dbmlaw.ca or 604-937-6373.