Property Transfer Tax (PTT): 3 Common Exemptions
Property Transfer Tax (PTT): 3 Common Exemptions
What is Property Transfer Tax?
Many people looking to purchase a home do not consider that in addition to the purchase price, appraisals, Insurance and legal fees, there is a further considerable cost called Property Transfer Tax (PTT). PTT is a tax payable to the government whenever you acquire an interest in land in British Columbia, for example when you purchase a home.
What is Fair Market Value?
PTT is calculated on the fair market value of the property. Fair market value is the price a party is willing to pay for an asset (i.e. a home) in an open market. In most residential real estate transactions, the fair market value is the purchase price. In situations where an asset is not put on the open market, such as an inheritance, gift or a private sale, an appraisal, a comparative market analysis, or the assessed value of the property may be deemed to be the fair market value. Assessed property values can be found here: https://www.bcassessment.ca/.
How is PTT Calculated?
As stated, PTT is calculated on the fair market value of the property. The amount payable is 1% on the first $200,000.00 of the fair market value, 2% on the amount between $200,000.00 - $2,000,000.00, 3% on the amount between $2,000,000.00 - $3,000,000.00 and 5% of the remainder.
For example, if you are purchasing a property for $1,500,000.00 the calculation would be as follows:
Amount on the first $200,000.00 = 1% x $200,000.00 = $2,000.00
Amount on $200,000.00- $2,000,000.00 = 2% x $1,300,000.00 = $26,000.00
Total = $28,000.00
Additional PTT is also applicable if you are a foreign national, foreign corporation or a taxable trustee.
To get an estimate of what the PTT for your purchase will be you can use the PTT calculator.
Exemptions to Property Transfer Tax
In some cases, you may be able to claim a partial or full exemption on PTT. Below are three examples of commonly used exemptions:
First Time Home Buyers Exemption
If you are a first time home buyer, you may qualify for the First Time Home Buyer’s Exemption if you meet the following criteria:
- You are a Canadian Citizen or permanent resident;
- You have either (a) lived in B.C. for at least a year immediately before you purchase the property, or (b) filed at least 2 income tax returns as a B.C. resident in the last 6 taxation years immediately before you purchase the property;
- The property being purchased has a Fair Market Value of $500,000 or less;
- The property is 0.5 hectares (53819.6 square feet) or smaller; and
- The property will be your principal residence.
If the property being purchase has a Fair Market Value of $525,000.00 or less, and you meet the other criteria listed above, you may qualify for a partial PTT exemption.
Newly Built Home Exemption
With the increase in residential development across BC, it is good to know that newly built properties are also eligible for full and partial PTT exemptions. In order to qualify for, the following must apply:
- The party acquiring the property must be an individual and ether a Canadian resident or permanent resident
- The property must be located in BC
- The Fair Market Value must be $750,000.00 or less
- The lot size must be 0.5 hectares (53819.6 square feet) or smaller
- The property must be used as the individual’s principal residence.
Transfer of a Principal Residence Exemption
When a related individual transfers a principal residence or an interest in a principal residence to you, you may be exempt from paying PTT.
First, to qualify for a full exemption from PTT, the principal residence must meet the following four criteria:
- Prior to the transfer, either you (the “Transferee”) usually resided and used the property as your home, or the person transferring the property to you (the “Transferor”), usually resided and used the property as their home;
- The improvements on the land (e.g. the buildings) are designed to accommodate, and do in fact accommodate, three families or less;
- BC Assessment must classify the improvements on the land as residential; and
- The total area of the land is 0.5 hectares (1.24 acres) or smaller.
The law narrowly defines a related individual to include:
- Your spouse, child, grandchild, great-grandchild, parent, grandparent or great-grandparent;
- The spouse of your child, grandchild or great-grandchild;
- The child, parent, grandparent or great-grandparent of your spouse.
The definition of Child includes a stepchild. Moreover, spouse is defined as:
- a person who you are married to, or
- a person who you are living and cohabitating with in a marriage-like relationship, provided that you have been living and cohabitating in that relationship for a continuous period of at least two years.
For greater clarity and for the purposes of the PTT exemption, the law does not consider your sister, brother, uncle, aunt, niece or nephew (“Non-Relatives”) to be a related individual. Thus, you are required to pay property transfer tax if any of the Non-Relatives transfers a principal residence to you.
Further, if a principal residence is transferred to two or more people who are not all related individuals of the Transferor, an exemption may only apply to the interest acquired by the people who are related individuals to the Transferor.
For a complete list of all PTT exemptions and the qualifications, click here.
Understanding PTT exemptions and the various scenarios and qualifications can be overwhelming during the tight timelines often involved with acquiring and selling a home. If you are purchasing or selling a home and need legal advice, give us a call at 250-383-9104, we are always happy to assist in your next real estate endeavor.
A Cautionary Note
This article provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.