British Columbia’s real estate market is known for its dynamic nature, attracting both domestic and international investors. To regulate this market and generate revenue, the province imposes the Property Transfer Tax (PTT) on property transactions. This article delves into the intricacies of the PTT, its implications for foreign entities/nationals, and examines a recent pivotal case: British Columbia v. 1084204 B.C. Ltd., 2025 BCCA 110. If you are an international buyer of British Columbia real estate, understanding these rules could save you tens or hundreds of thousands of dollars. Be sure to also check out our blog, Outlining the Complexities of Foreign Ownership of Canadian Real Estate, for other Canadian federal/provincial/municipal taxes and rules aimed at preventing foreign ownership of Canadian real estate.
Overview of the Property Transfer Tax (PTT)
The PTT is a one-time tax levied when property ownership is transferred in British Columbia. It applies to various property types, including residential, commercial, and industrial properties.
Standard PTT Rates:
- 1% on the first $200,000 of the property’s fair market value (FMV)
- 2% on the portion between $200,000 and $2 million
- 3% on the portion between $2 million and $3 million
- 5% on the portion exceeding $3 million
Additional Property Transfer Tax (ATT or Foreign Buyers Tax):
Introduced in 2016 and expanded in 2018, this tax imposes an additional 20% on the FMV of residential properties purchased by:
- Foreign nationals – a person who is not a Canadian citizen or permanent resident of Canada, including a stateless person.
- Foreign corporations – a corporation that is one of the following:
- Not incorporated in Canada, or
- Is incorporated in Canada but is controlled directly or indirectly by one or more foreign entities (see section 256 of the Income Tax Act (Canada) for further details), unless the shares of the corporation are listed on a Canadian stock exchange.
- Taxable trustees – either:
- a foreign national or foreign corporation holding title in trust for beneficiaries, or
- a Canadian citizen or permanent resident, if a beneficiary of the trust is a foreign national or foreign corporation and that beneficiary holds a beneficial interest in residential property held by the trust immediately after registration of the transfer with the Land Title Office.
The term ‘beneficial interest’ refers to a right or expectancy in relation to property of the trust that is distinct from legal title.
A trust does not need to be established by a written, notarized document. An intention by words or conduct to create a trust may create a trust relationship. In some cases, the existence of a trust relationship is presumed, for example in the case of a resulting trust.
The existence of a trust relationship will often depend on mixed questions of fact and law. Where it is unclear if a trust relationship exists, consult a trust lawyer.
This tax applies in specific regions, including Metro Vancouver, the Capital Regional District, Fraser Valley, Central Okanagan, and Nanaimo.
The 1084204 B.C. Ltd. Case
In British Columbia v. 1084204 B.C. Ltd., the central issue was whether the Additional Property Transfer Tax (ATT) applied when a foreign-controlled company acquired property as an agent for a Canadian permanent resident.
Case Background:
- 1084204 B.C. Ltd. (“108”) is a B.C.-incorporated company with a foreign national, Mr. Oeri, as its sole shareholder.
- 108 purchased a residential property in B.C., claiming it acted solely as an agent for Mr. Oeri’s common-law spouse, Ms. Sui, a Canadian permanent resident.
- The company argued that since the beneficial ownership was intended for a Canadian resident, the ATT should not apply.
Court Findings:
The British Columbia Court of Appeal reversed the initial decision, emphasizing:
“Regardless of whether 108’s relationship with Ms. Sui could be characterized as an agency or a trust, or both, 108’s liability to pay the ATT arose on the registration of the transfer of the legal estate to 108.”
This ruling underscores that the ATT applies based on the legal title holder at the time of registration, irrespective of any underlying beneficial ownership arrangements.
Implications for Real Estate Transactions
The 1084204 B.C. Ltd. case highlights several critical considerations:
- Legal vs. Beneficial Ownership: The PTT, including the ATT, is triggered by the registration of legal ownership, not beneficial ownership.
- Agency Relationships: Even if a foreign entity acts as an agent for a Canadian resident, the ATT applies if the foreign entity is the registered owner.
- Due Diligence: Parties must exercise caution in structuring transactions to ensure compliance with tax obligations.
Best Practices for Compliance
To navigate the complexities of the PTT and ATT:
- Seek Professional Assistance: Engage professionals familiar with B.C.’s real estate and tax laws.
- Transparent Structuring: Ensure that the transaction structure reflects the intended ownership and complies with legal requirements.
- Timely Disclosures: Accurately complete all required tax forms and disclosures during the registration process.
Conclusion
The Property Transfer Tax, particularly the Additional Property Transfer Tax, plays a significant role in British Columbia’s real estate landscape. The 1084204 B.C. Ltd. case serves as a cautionary tale, emphasizing the importance of understanding and adhering to the legal definitions and requirements associated with property transfers. Proper planning and professional guidance are essential to ensure compliance and avoid unforeseen tax liabilities. Contact a cross-border financial planner at Cardinal Point to discuss your situation.