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GOBC Real Estate Class Notes

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5.2
Taxes on Real
Property

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 5.2 Taxes TAXES
on RealON
Property
PROPERTY:

“Goods and Services Tax” (GST)- Taxes on the purchase or sale of real property

GST is a federal tax BUYER obligation to pay GST

• GST is a value-added tax
• Compared to income tax, GST has a relatively low
rate of taxation
• GST is imposed under the Excise Tax Act (ETA)
• GST applies to all transactions unless it is expressly
listed as an exemption in the Excise Tax Act
• If you owe GST it is a Debt to CRA and is payable
immediately – pay now, dispute later!
• The Buyer (the “recipient”) has the obligation to pay the GST
• GST generally does not apply to the amount of the deposit
until the closing date at which time the full amount of the
sale price (including the deposit) becomes taxable
• No GST applies to reimbursements for prepayments
• Only amounts on the statements of adjustments that are
legally components of the purchase price are subject to GST

SELLER’s GST Obligation TO DISPUTE:

Sellers collect GST from the buyer as an agent for the government. it 90 days from the date of the assessment to file an
is deemed to be held in trust. objection first with the CRA which can then be
appealed to:
When the seller collects GST from the buyer, it is deemed to be held - Tax Court of Canada
in trust for the government until it is remitted - Federal Court of Appeal
- Supreme Court of Canada
Where a seller fails to collect GST from the buyer, the seller
becomes equally liable to the government for the amount of the tax
Self-Supply Rule
Uncollected GST - the seller has a right to pursue the buyer for the Builder or tenant moves into new build
amount of the GST Seller PAYS THE GST and cannot charge the Buyer later

GST CREDITS:

1. INPUT TAX CREDIT Residential Complex Includes:

GST deduction a person can claim on their GST return for the amount of ➢ Detached Homes
GST paid by that person on the acquisition of property or services ➢ Condominium units (Strata)
✓ Commercial real property transactions ➢ Land that is “reasonably necessary” for the
✓ Buyer is responsible for reporting the GST use and enjoyment of the complex as a place
of residence
Seller may be required to collect the GST
2. REBATES
a form of tax recovery that allows non-businesses to GST EXCLUDED:
recover GST paid with respect to certain transactions ✓ Hotel- subject to GST
✓ Short term rentals (Airbnb)- subject to GST
✓ Individuals entitled to the rebate are generally required to file
✓ Assignment Fees- subject to GST
a rebate application form
✓ with the CRA within two years of the purchase
✓ CRA has the power to audit and then assess a buyer or seller
in respect of a GST amount
✓ To dispute - 90 days from the date of the assessment to file an
objection
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then Tax Court, then Federal Court of 2
Appeal, Supreme Court of Canada
 5.2 Taxes on Real Property

“Property Transfer Tax” (PTT)- Taxes on ownership/use of real property, paid before you purchase
Property Transfer Tax (PTT)
1. PTT - applies to any transfer of an interest that is registered at the Land Title Office Includes: sale of a fee simple interest,
agreement for sale, a life estate, and a Crown grant.

2. Payable by the BUYER on the fair market value (at date of registration)

3. Commercial property - PTT is generally calculated with reference to ALL fixtures, including some machinery or equipment and
may also be subject to PST

4. Foreign Buyer's tax: Basic PTT payable + 20% of fair market value

Foreign Buyers Tax - 20%
Basic PTT payable + 20% of fair market value
Applies to RESIDENTIAL properties in: Greater Vancouver
Regional District (GVRD), Capital Regional District, Fraser
Valley, Central Okanagan, and Nanaimo Regional District.
If a property has both Resi/Comm parts, then only the
Residential portion is subject
Exceptions:
an individual who purchases property, pays the Foreign Buyers’
Tax, and within a year becomes a permanent resident or
citizen of Canada, is eligible to claim back the Foreign Buyers’
Tax that he paid
2 main Conditions for the application of the Foreign Buyers’
Tax:
1. the Nature & Location of the property (only residential)
2. the Identity of the buyer:
➢ Foreign national: not a Canadian citizen or permanent
resident of Canada
➢ Foreign corporation: non-Canadian corp. or a Canadian
corp. controlled by a foreign national or another
foreign corporation
➢ Taxable trustee: trustee that is a foreign national or
foreign corporation; or a Canadian citizen
or corporation that is holding title for a foreign
national or foreign corporation

First Time Home Buyers’ Program Withholding Taxes for Non-Residents Who Sell Property

➢ The buyer must be a Canadian citizen or
permanent resident of Canada.
➢ The buyer generally must have lived in the
province for a year before the purchase.
If the seller is not a resident of Canada, 25% of the gross
proceeds is required to be withheld by the buyer and
remitted to Canada Revenue Agency.

➢ The buyer cannot have previously owned a

principal residence anywhere in the world. Newly Built Home Exemption Program

➢ The property must become the buyer’s • The buyer must be a Canadian citizen or permanent resident of
principal residence, have a fair market value Canada.
of less than $500,000, and be 0.5 hectares or • The property must become the buyer’s principal residence, have
smaller a fair market value of less than $750,000 or less

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 5.2 Taxes on Real Property

TAXES ON CAPITAL GAINS UPON SALE 2 NEW Questions on the EXAM

Capital Gain Applies to:

profit earned from the sale of a property or
other investment
50% or 100% of the profit realized (earned) on
the sale of a property is taxed depending on
whether it is considered a true capital gain or
business income
➢ Get your client to ask a tax
professional for advice!
Business income
includes money earned from any activity that is done
for the purpose of making a profit
➢ Business income is taxable at individual
income or corp tax rates
➢ Flipping real estate is a business venture &
100% of the profit is taxable (instead of 50% of
profit for Cap Gain)
Get your client to ask a tax
professional for advice!
➢ Property earning revenue (rentals: full/partial)
➢ Long-term investment
➢ Purchase to “flip” for a profit
50% of the profit is taxed when it is a Cap Gain!
Exempt from Capital Gain Taxation:
If the entire property is your principal residence (to live in)
Business income VS Capital Gain?
➢ The intention/motive of the owner
➢ Financing method (e.g., short term financing - sell quickly
for profit)
➢ The length of time the seller owned the property
➢ How the owner intends to use it
➢ The frequency or number of other similar transactions by
the owner

TAXES PAID WHILE HOLDING REAL ESTATE PROPERTY

1. Property Tax
2. Speculation & Vacancy Tax (SVT)
3. Empty Home Tax (EHT)
1. PROPERTY TAX

Net Taxable Value (NTV) “Mill Rate”

the actual value of the real property as determined by the assessor, tax rate applied to each $1,000 of net taxable value
less any exemptions that apply NTV = (Taxes / Mill rate) x 1,000
NTV = (Taxes / Mill rate) x 1,000 TAXES = NTV / 1,000 x Mill rate

You own a house in Nanaimo and owe $1,134.82 for general taxes. You own a house in Vernon and the taxable value
If Nanaimo’s general tax mill rate is 4.829 of the property is $450,000
What is the net taxable value of your house? If Vernon’s general tax mill rate is 5.41
Round your answer to the nearest $100 How much amount of taxes owed?
(1) $235,000 NTV = (Taxes / Mill rate) x 1,000
(2) $548,000
(3) $54,800
(4) $23,500

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 5.2 Taxes on Real Property

PROPERTY TAX SYSTEMS: There is NO single statute in BC that

provides a comprehensive explanation of
the Property Tax system
Who pays Property Taxes?
OWNERS pay Property Taxes!
1. Assessment Act 5. Home Owner Grant Act
✓ Owner of a Fee Simple interest
2.Community Charter 6. Land Tax Deferment Act
✓ Owner of a Life estate
3. Vancouver Charter 7. Local Government Act ✓ Owner of an Agreement for sale
4. School Act 8. Taxation (Rural Area) Act ✓ Tenant for Life
✓ Owner of the Improvement -continuous structures:
What values are taxed? pipe lines, tunnels, bridges, roads, pole lines, cables –
not the owner of the land
Assessor’s decision based on:
- Location DO NOT pay for taxes when you residential Lease !
- Present use
Charities are NOT exempt from paying taxes
- Rental or revenue potential
- Selling price of land and the
improvements
- Obsolescence (Economic and
functional) Assessed Value = Actual Value
- Replacement cost market value of the fee simple "Split classification" taxation
interest in the land & improvements A division of a property’s value
between two or more property
The assessor values the property as classes, by an assessor,
The assessor
at July values
1 of the the property
previous year as after considering & satisfying
Assessment notice –
an extract from the assessment roll at (as of) July 1 of the previous year certain criteria
informs the property owner of the
actual value of his property Tax notice –
Request for payment of taxes

Tax Notices are mailed to owners

End of December (rec’d by owners in
Jan)

When will BC Assessment mail

assessment notice to property owners?
December 31

Assessment Appraisal (Assessor) Private Fee Appraisal

Constrained to certain dates Flexible
Must value ALL interests in land Flexible

Can NOT adjust estimate of value to reflect tenants Can adjust estimate of value to reflect tenants interest
interest

Has a data for ALL real property transactions reported Doesn't have an access to all transactions
by land title office

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 5.2 Taxes on Real Property

EXEMPTIONS FROM TAXATION:

Homeowner Grant
➢ Properties owned by the Crown Only the owner-occupier of the property is eligible
➢ Municipal properties - Hospitals,
Schools, Indian/Aboriginal lands
➢ Universities, Colleges, Schools
➢ Cemeteries Tax Deferral
➢ Churches
➢ Some Farms 1. Widow/widower
25% equity
➢ Forest Land 2. 55 years or older
➢ Golf Courses 3. Permanently disabled
➢ Home Owner Grant 4. Financially supporting a child 15% equity

1. Must be a Canadian citizen/landed immigrant

2. Must have lived in BC for 1 year
3. Must own a certain % of Equity in the property

Who can appeal? – Anyone

If the property has been:

*Wrongfully valued
ASSESSMENT APPEALS *Change of use
*Wrong personal info
*Improperly classified (farmland)
*Wrong exemption allowed

If Property Assessment Appeal Board made a legal error

in its decision- you can apply within 21 days after you
receive the decision NEW

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 5.2 Taxes on Real Property
2. SPECULATION & VACANCY TAX (SVT)
Speculation and Vacancy Tax (SVT)
The SVT is an annual tax that is payable by any registered
owner or co-owner of residential property located in
designated taxable regions of British Columbia, unless the
owner qualifies for an exemption
1. Annual Tax- Each owner must complete annual
declaration
2. Applies to RESIDENTIAL PROPERTY in specific,
taxable regions of BC- Not Commercial!
3. Can claim exemption or get tax credits
“Satellite Family” –
an individual or spousal unit that declares less than 50% of
their total combined household income for the year on
Canadian income tax returns
Example #1 70% income outside of Canada, not reported
#1 Spouse (Canadian citizen, no the house owner)
#2 Spouse (Not a Canadian citizen, owns the house)
= BOTH Satellite Family embers
Example #2 100% income outside of Canada, not reported
#1 Spouse+ Kids (live in BC, Canada, not the house owner)
#2 Spouse (outside of Canada most of the time, owns the
house, 100% of income outside of Canada)
= BOTH Satellite Family embers
3. EMPTY HOME TAX (EHT)
Empty Home Tax (EHT)
• if property is unoccupied for six full months of
the year or more will be subject to a 3% (EHT)
• a short-term rental without a hotel or B&B
license
• if rental periods are shorter than 30 days
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IF you have to pay – the RATE of tax depends on “who” you are:
1. 2.0% of assessed value for foreign owners and satellite
family members
2. 0.5% of assessed value for Canadian citizens or
permanent residents of Canada (and not members of a
satellite family)
SVT EXEMPTIONS:
1. Principal Residence exemption
- live in the home full-time and the home is the
principal residence for the calendar year
2. Rental exemptions
- the property must be occupied by a tenant for at
least six months of the year, in increments of one
month or longer
3. - rental exemption in respect of a non-arm’s length
tenant, so long as the residence is the tenant’s
principal residence
4. 3. Major home renovations and Life Events (death,
divorce, bankruptcy)
Foreign owners and members of satellite
families can claim a tax credit = 20% of
any income earned in BC
EHT EXEMPTIONS:
• properties which are rented for at least 30 days
in a row for a minimum of six months in
aggregate over the course of a year are exempt
from the EHT.
• to properties being used as a principal
residence by the owner, a family member, or a
friend for at least six months of the year
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 5.2 Taxes on Real Property

Questions
1. If you file an objection to pay GST and it is affirmed by an appeals officer at the CRA, you have exhausted your options in
terms of appealing the assessment
(1) True
(2) False

2. Parm is purchasing a new home and pays a $75,000 deposit to the seller on March 15 th. The closing date for Parm’s
purchase is July 1st. What are Parm’s GST obligations?
(1) Parm must pay GST on the $75,000 deposit as soon as she pays the deposit on March 15 th
(2) Parm is never required to pay GST on the $75,000 deposit, as it is not a commercial activity.
(3) Parm must pay GST on the $75,000 deposit once the closing occurs, when the full amount of the sale price, including
the deposit, becomes taxable
(4) Parm is not required to pay GST on the purchase, as new homes are always exempt as provided for in the Excise Tax
Act.
.
3. If the seller receives an assessment from the Canada Revenue Agency for the amount of the GST after failing to collect it
from the buyer, the seller has lost his or her ability to pursue the buyer for the amount of the tax and will be held fully liable
for the amount
(1) True
(2) False

4. Which of the following statements regarding the additional property transfer tax (the “Foreign Buyers’ Tax”) is CORRECT?
(1) When applicable, the Foreign Buyer’s Tax replaces the basic Property Transfer Tax on residential properties
(2) The Foreign Buyers’ tax applies to commercial and residential property purchased by a foreign national, a foreign
corporation, or a taxable trustee in the Greater Vancouver, Capital, Fraser Valley, Central Okanagan, or Nanaimo
Regional Districts.
(3) The Foreign Buyers’ Tax may apply to the purchase of residential property by a corporation that is incorporated in
Canada by controlled by a foreign national
(4) All residential properties in BC purchased by a foreign national, a foreign corporation, or a taxable trustee are subject
to the Foreign Buyers’ Tax.

5. Which of the following buyers, who have purchased residential property in the Greater Vancouver Regional District, is likely
to be able to claim an exemption or a rebate for the Foreign Buyers’ Tax?
(1) An American citizen who is living in Seattle and has purchased the land as an investment property.
(2) A citizen of the United Kingdom who purchased land in Vancouver while staying in Canada on a working holiday visa.
She received status as a permanent resident of Canada six months after purchasing the home.
(3) An investment company which was incorporated in Canada, but operates under the control of a parent company in
Brazil.
(4) A Canadian citizen who holds title on the property for a friend who is a Japanese citizen and is looking to move to
Canada after finishing a three-year work contract in Tokyo.

6. Which of the following statements about the property Transfer Tax (PTT) is TRUE?
(1) The PTT is payable by the seller, and applies to any transfer of an interest in real property that is registered at the Land
Title Office
(2) When the PTT applies to the sale of commercial real property, it excludes any fixtures such as machinery or equipment
that are subject to Provincial Sales Tax
(3) The PTT applies to the sale of a fee simple interest in a home that is conveyed from a seller to a buyer, but not to other
registered interests such as life estates or Crown grants.
(4) The PTT applies to any transfer of an interest in real property that is registered at the Land Title Office, unless the
transferor can rely on an exemption from PTT

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 5.2 Taxes on Real Property
7. Which of the following factors is generally NOT considered in determining whether or not profit realized on the sale of
property is treated as business income rather than a capital gain for taxation purposes?
(1) The intention of the owner at the time he or she purchased the property
(2) The method of financing used to purchase the property
(3) The nature of the buyer who purchased the property
(4) The length of time the seller owned the property

8. Which one of the following Statutes affect the real property taxation system in BC?
(1) Real Estate Services Act
(2) School Act
(3) Arbitration Act
(4) Land Transfer Form Act

9. Which one of the following Statutes in BC that provides a comprehensive explanation of the Property Tax system?
(1) Assessment Act
(2) Local Government Act
(3) Community Charter
(4) In BC there is NO single statute that can explain the Tax system comprehensively

10. Which one of the following factors states that an assessor may consider establishing the actual value of a residential
property for tax assessment purposes:
A. Property insurance (1) A and D
B. Economic obsolescence (2) B and C
C. Replacement cost (3) A, B and C
D. Outstanding balance of the mortgage loan (4) All of the above

11. When will BC Assessment mail assessment notices to property owners?

(1) sometime in July
(2) at the end of October
(3) at the end of December
(4) sometime in March

12. It is January 6th, and Mike has just received an assessment notice on his home. The assessed value of the property is shown as $600,000,
which represents the value of the property as at:
(1) December 31 of the previous year
(2) July 1 of the previous year
(3) The date of the assessment notice
(4) January 1 of the current year

13. Which one of the following statements best describes the difference between an assessment notice and a tax notice?
(1) A tax notice is a request for payment, while an assessment notice is not.
(2) Both notices are requests for payment, but a tax notice also provides a breakdown of the tax systems.
(3) Neither statement is a request for payment; they both inform the owner of the assessed value of the property.
(4) An assessment notice is used to supplement the assessment roll.

14. What is the primary difference between an Assessment Appraisal and Private Fee Appraisal?
(1) The private fee appraiser has access to all data for all real property transactions as reported by the land title office, whereas the
assessor does not.
(2) The assessor would normally his estimate of value to reflect a tenant’s interest, whereas the private fee appraiser does not
(3) The private fee appraiser looks at the market for the various indicators of value, whereas the assessor does not.
(4) The assessor is constrained to certain dates and must value all interests in land.

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 5.2 Taxes on Real Property
15. Which would be fully exempt from taxation?
(1) Martland, BC has recently built a new City Hall building. The former City Hall is still owned by the municipality, but is
now rented out and operates as a profitable art gallery.
(2) A church is located on a one acre parcel of land in Prince George, BC. The church has built a multi-family dwelling on a
portion of the site to provide additional revenue.
(3) A University that permits community groups to use its playing fields during the summer.
(4) All owner-occupiers who earn less than $12,000 a year gross income.

16. Who may claim a home-owner grant?

(1) anybody whose name appears on the assessment roll
(2) the tenant of a property, if he has a lease exceeding 3 years
(3) the owner of a property, whether he lives there or not
(4) the owner-occupier of a property

17. What would make a property owner eligible to apply for deferral of real property taxes on their:
(1) The property owner is a war veteran.
(2) The property owner is 55 years of age or over.
(3) The property owner has declared bankruptcy within 12 months of the application.
(4) The property owner is a member of Parliament

18. When can an appeal be made to a supreme court of BC regarding a real property assessment value?
(1) Within 21 days of property assessment review panel’s hearing
(2) Never, as a BC court of appeal as a court that hears assessment appeals on point of laws
(3) Within 30 days of a receipt of an assessment notice
(4) Within 21 days of appeal board decision

19. An appeal on a point of law regarding a real property assessment value can be made from the Property Assessment Appeal
Board directly to the:
(1) Property Assessment Review Panel
(2) B.C. Supreme Court
(3) B.C. Court of Appeal
(4) Supreme Court of Canada

20. Which of the following statements regarding the Speculation and Vacancy Tax (SVT) is TRUE?
(1) The SVT is applicable to all owners of residential and commercial property located in designated taxable regions of BC.
(2) All owners of residential property located in designated taxable regions of BC must pay the SVT and there are no
exemptions.
(3) In order to claim an exemption from SVT, an owner must be eligible for full or partial tax credits.
(4) The SVT is payable by owners of residential property located in designated taxable regions of BC, unless the owner
qualifies for an exemption.

21. In which of the following scenarios would the City of Vancouver’s Empty Homes Tax likely apply?
(1) The owner spends the summer (from June to August) living in the property as a principal residence. For the remainder
of the year, she lists the property on Airbnb, exclusively for weekend trips. She does not have a hotel or B&B license.
(2) The owner lives abroad, but he rents the property for six 30-day terms throughout the year in order to avoid paying the
Empty Homes Tax.
(3) The owner uses the property as a principal residence, but spends up to six months of the year abroad on business trips.
(4) The owners initially purchased the property as an investment, but now that their daughter has started attending
university in Vancouver, she uses the property as a principal residence from September to April.

Answers: 1(2), 2(3), 3(2), 4(3), 5(2), 6(4), 7(3), 8(2), 9(4), 10(2), 11(3), 12(2), 13(1), 14(4), 15(3), 16(4), 17(2), 18(4),
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