Property Transfer Tax: First Time Home Buyers

First time home buyers get an exemptions from paying the property transfer tax and this "tax break" can save FTHB thousands of dollars. However, First Time Home Buyers need to carefully ensure that they qualify for this tax savings. Persons claiming a FTHB credit are regularly audited by the PTT Office.

The Criteria to Qualify are as follows;

Purchaser must:
a)  be a Canadian Citizen, or a permanent resident as determined by Immigration Canada,
b) have lived in British Columbia for 12 consecutive months immediately before the date
you register the property, or you have filed 2 income tax returns as a British Columbia
resident during the 6 years before the date you register the property,
c) never owned an interest in land anywhere in the world at anytime,
and
d) you have never received a first time home buyers’ exemption or refund.

The Property you purchase must also qualify as follows:
a) the price must be less than $425,000
b) the land must be less than 0.5 hectares (1.24 acres), and
c)  the property will only be used as your principal residence.

Importantly, if you sell the property or acquire a new principal residence within 12 months of purchase, you will lose the exemption and the Province will demand for the tax to be paid.

More information here:
http://www.sbr.gov.bc.ca/documents_library/brochures/firsttimehomebuyer.pdf

Getting Ready to Sell – Cleaning Up Your Land Title

As we move into another Buyer’s market cycle, it is important to remember the lessons Seller learnt the “last time around”. Realtors often recommend to Sellers to “declutter” and “stage” the interior of their homes, however, it is important to remember that, at its foundation Buyers are purchasing “PROPERTY RIGHTS” and therefore its important to ensure, as a Seller, that your Land Title is also “squeaky clean”.

A couple of things to do:

1. Remove any “extra” encumbrances on title – usually Buyers are expecting to see typical first mortgages on title, however where Uncle Buck lent you some money and registered a non-institutional second mortgage, or, where you have a small claims judgment registered against you, these “extra” encumbrances on title, including 2nd mortgages, judgments, builders liens, or certificates of pending litigation, can raise big RED FLAGS for Buyers, if they can be removed prior to closing (or even listing), it can make for a much smoother process.

2. Ensure you (as Seller) and only you are on title as the registered owner – did you inherit the property in a Will? Or, did your parents go on title as this was your first home? Or, have you gone through a legal separation? If you have the full legal rights to sell the home, ensure that you (and only you) are on title. In most cases the transfer to a surviving joint tenant, or to from parent to child, or a transfer in the course of a legal separation is easy (and most of the time a Property Transfer Tax exemption is available and no tax is payable!) Best to take care of these items prior to listing so there is no question when you sign the Contract that you are the person with the ability to sell the property.

3. Return the Duplicate Certificate of Title – A Duplicate Certificate of Title may be removed from the Land Title Office by some banks as security for loans (with or without registration of the mortgage). In the event that the Duplicate Certificate of Title is outstanding, no further transfer or mortgage may be registered on title. Therefore if this has been removed from the Land Title Office, it will bar any sale or mortgage of the property until it is returned and refiled with the Land Title Office.

Property Transfer Tax - First Time Home Buyer Exemption

This exemption is more limited than most first time home buyers realize, its not enough that this is your first home in British Columbia, to qualify you must meet all of the following criteria:

1) Be a Canadian Citizen or Permanent Resident.
2) Must have resided in BC for the last 12 months, and at least 2 of the last 6 tax years.
3) Must never held title to property any where in the world
4) Must not have previously applied for the exemption.

Usually, #2 causes the most problems. For example, if you are a college student in Ontario and you are moving out to British Columbia to start your first job. Upon buying your first home you would not qualify for the FTHB exemption as you have not resided in British Columbia for a sufficient time.

Property Transfer Tax - Related Induvidual Exemption

One of the limited exemptions to paying property transfer tax occurs where the Seller is related to the Buyer. However, for this exemption to apply, the Seller and Buyer must be "vertically related" and the property must be a principal residence.

So, consider the situation where husband is on title and wishes to add his wife to title to their family home for estate planning purposes. Normally, this transfer would be taxed by Property Transfer Tax, however, the exemption applies and no tax is applicable.

If however, an uncle wishes to sell his property to his neice, since they are not vertically related the exemption does not apply, and Property Transfer Tax is payable on a direct transfer from the uncle to the niece.

Similarly, if the property is a rental property, no exemption is available as it is not a principal residence.

Property Transfer Tax

For most out of province buyers, finding out about Property Transfer Tax often comes as an unpleasant shock. Property Transfer Tax is charged on every transfer of freehold title in the Province of British Columbia as is calculated as 1% of the first $200k and 2% of the remainder of the Purchase Price

This means a $300,000 home buyer will pay $4,000.00 in Property Transfer Tax on closing. Similarly, a $600,000 home buyer will pay $10,000.00 in Property Transfer Tax on closing. This tax hit is made even more difficult as banks will not finance this payment.

The tax can be avoided if you qualify for a limited set of exemptions, the two most common are:
a) the first time home buyer exemption; and,
b) the related induvidual exemption.
I will discuss this exemptions in more detail in later posts.