One of the most common areas of questioning that we receive as real estate lawyers surrounds the topic of the First Time Homebuyers’ Exemption (“FTHB”) for Property Transfer Tax (“PTT”). In British Columbia, property transfers registered in the Land Title Office are generally subject to the PTT which is administered by Ministry of Finance in British Columbia unless an exemption is available. Although there are a range of exemptions that may be applicable in any given case, the FTHB exemption will be the subject of this article.
PTT is calculated based on 1% on the first $200,000 of fair market value of the land plus the improvements to the land and 2% on the balance. It is important to note that this calculation is based on the fair market value of a property, and not the amount of funds that actually change hands or the specified purchase price for a particular transaction. According to the Ministry of Finance’s Tax Bulleting PTT 001, fair market value is considered to be “the price that you, as a willing purchaser, would pay to a willing seller in the open market. An open market is where property is offered for sale so that anyone interested in purchasing the property has an opportunity to make an offer.” As a result, the amount considered to be the fair market value of the property by the Ministry of Finance may be different than the purchase price indicated in your purchase contract. As a result, any changes in the value of the property between the time the contract was signed and the transfer is registered should be considered in determining what value the PTT should be calculated based on.
The PTT is payable on registration of the transfer at the Land Title Office and will generally be collected from you and paid to your lawyer or notary prior to registration unless you meet the requirements for a particular exemption. One of the most frequent exemptions that gets claimed is the FTHB exemption which, if available, can result in fairly significant savings. However, if the exemption is claimed and the claimant was not entitled to it because they have previously owned an interest in a principal residence or they have previously received the FTHB credit, the claimant would be required to pay double the tax. In order to meet the requirements, there are conditions that must be met by the property as well as by the claimant:
- Fair market value of the property must not exceed $475,000 (with a partial exemption to $500,000);
- The land does not exceed 0.5 hectares or 1.24 acres (with a partial exemption if the property exceeds these size restrictions); and
- The property will be used as the principal residence for the claimant (with a partial exemption if the property will be used for other purposes).
- You must be a Canadian citizen or permanent resident;
- You must have resided in BC for 12 consecutive months immediately before the date you register the property transfer (or have filed 2 income tax returns as a BC resident during the 6 years before the registration date);
- You have never owned an interest in a principal residence, being the place the usual place that you live, anywhere in the world at any time; and
- You have never received a first time homebuyers’ exemption or refund.
In addition, the property must become your principal residence within 92 days of completing your purchase and remain same for at least one year following the completion of your purchase. This requirement does not apply for a property being purchased as vacant land with a home being constructed on it thereafter. In those circumstances, you will have one year from the date the transfer of land is registered in order to move into your home. Similarly, if the occupancy requirements are not met as a result of death or a separation or divorce (requiring a separation agreement or court order), the FTHB exemption will not be lost.
The exemption can be claimed at the time of purchase. In the event that the exemption is not claimed at the time of closing, a refund can be requested within 18 months of the registration date. This refund is also available if the claimant became a Canadian citizen or permanent resident within 12 months of the registration date.
In some cases, claimants may receive correspondence from the Ministry of Finance with respect to the return filed, tax paid, or an exemption claimed. It is very important that this correspondence be addressed or the Ministry of Finance may proceed with a re-assessment without any further discussion or input from the claimant.
PTT and the available exemptions involve many different intricacies. We strongly recommend that you thoroughly investigate these issues with respect to any particular circumstances and seek advice if appropriate.
Author: Una Gabie