A person who is neither a Canadian citizen nor a permanent resident of Canada (“PR”) must traverse a minefield of laws that may prevent or hinder him or her or them from purchasing residential property in BC namely:
- The federal government’s Prohibition on the Purchase of Residential Property by Non-Canadians Act (“the foreign buyers ban”)
- The BC government’s Property Transfer Tax Act (specifically the “additional tax”, also known as the “foreign buyers tax”)
- The BC government’s Speculation and Vacancy Tax Act (as it pertains to “untaxed worldwide earners”)
FOREIGN BUYERS BAN
As of January 1, 2023 the federal government enacted a Canada-wide, two-year foreign buyers ban on the purchase of residential real estate (which is defined as a building containing three dwellings or less).
The ban covers areas that are inside of a Census Metropolitan Area (total population of 100,000 or more with at least 50,000 living in the core) or a Census Agglomeration (population at least 10,000).
Even inside Census Metropolitan Areas or Census Agglomerations, non-Canadians can purchase vacant land or land for development or acquire land as a result of a divorce, separation, gift or death.
A person who is neither a Canadian citizen nor a PR can still purchase residential real estate if his or her spouse (legally married or common law for one year or more) is a co-purchaser.
There are some exemptions for refugees and temporary residents (those who hold a current work permit as defined in the Immigration and Refugee Protection regulations or are otherwise authorized to work under said regulations) or foreign students who are enrolled in a program of authorized study. The regulations under this legislation further prescribe conditions for such exemptions.
Also non-Canadians who entered into contracts to purchase real estate before January 1, 2023 are exempt (i.e. if someone entered in to a presale purchaser agreement in 2022 they would be exempt).
It is a summary conviction offence for a non-Canadian to purchase residential real estate (unless exempted) as well as any one who knowingly assists them. A fine of up to $10,000 can also be levied and the property can be ordered to be sold with no profit going to the non-Canadian.
So, step one is to determine if a buyer is exempt from the provisions of the federal foreign buyer’s ban. If the buyer is exempt, the next consideration is the BC foreign buyer’s tax.
FOREIGN BUYERS TAX (BC)
In 2016 the Liberal government of British Columbia under Premier Christie Clark introduced a foreign buyers tax of 15% on the purchase of residential real estate in prescribed areas of this province, which included most of the larger metropolitan areas. The NDP government subsequently increased the tax to 20%. This tax is known as “additional tax” under the Property Transfer Tax Act which was originally enacted in 1987 by former premier Bill Van der Zalm. It is a cash cow for the BC government which routinely generates revenues over $3B a year.
Like the federal foreign buyer’s ban, the BC foreign buyers tax provides an exemption for Canadian citizens and PR’s who are purchasing residential real estate in BC in a prescribed area.
There is also an exemption for non-Canadians who have been accepted under the BC government’s Provincial Nominee Program see link. Unlike the federal act however, a spouse of a Canadian citizen or PR is NOT exempt from paying the BC foreign buyers tax, nor is a person with a federal work permit as defined under the Immigration and Refugee Protection regulations, a refugee or a foreign student enrolled in an authorized program of study.
The upshot of this is that a person holding a federal work permit, a foreign student or a refugee may bypass the federal foreign buyer’s ban only to be caught by the BC foreign buyer’s tax. On a million dollar purchase (which is not uncommon in the Lower Mainland, Greater Victoria or the Interior), the BC foreign buyer’s tax would add an extra $200,000 to the purchase price (and that’s on top of the $18,000 Property Transfer Tax that the person would have to pay like every other purchaser in BC!)
A couple purchasing in BC where the wife is a Canadian and the husband is neither a Canadian citizen nor a PR) could also run afoul of the BC foreign buyer’s tax if both parties were registered on title. As noted above, the wife would be exempt from the extra tax, but the husband would not. Many years ago, a solution would have been to register the wife as to a 99/100ths interest owner and the husband a 1/100th interest owner, thus minimizing the additional tax paid. However, since the introduction of the foreign buyers tax, the government appears to be taking more of an interest in parties registering on title in such a way as to minimize Property Transfer Tax (which includes the foreign buyer’s tax).* The anti-avoidance rule in the PTT legislation states:
Additional tax imposed — anti-avoidance rule
2.001 (1) In this section:
“avoidance transaction” means a transaction
(a) that, but for this section, would result, directly or indirectly, in a tax benefit, or
(b) that is part of a series of transactions, which series, but for this section, would result, directly or indirectly, in a tax benefit,
but does not include a transaction that may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than for the purpose of obtaining a tax benefit;
Thus, if their purchase was audited (within 6 years of the purchase date), the couple would presumably have to demonstrate to the PTT auditor why the non-Canadian spouse only acquired a 1% ownership interest (thus depriving the BC government of a substantial amount of tax). The majority of couples who purchase a residential property register on title as Joint Tenants (meaning that each is a half owner, with a right of survivorship). However, there are situations where that method of registration is not suitable. For example if the couple was just recently married and the Canadian wife was providing all of the funds, she may wish to have a higher ownership interest registered on title than one half. Or if she was going to purchase the property in solely in her own name, but needed the husband on title to qualify for mortgage financing, he might be registered for only a nominal interest. These could conceivably be “bona fide purposes” to depart from the common equal ownership regimen for couples. Failing to persuade the government auditor of such bona fides, could result in a fine up to $100,000 and/or up to two years in jail.
BC SPECULATION AND VACANCY TAX
This questionable and ineffective piece of legislation was enacted (retroactively no less) by the BC NDP government in 2018. It requires owners of residential property in prescribed areas in BC to either use the property as their principal residence or otherwise cause it to be occupied for at least six months out of every calendar year. In my view, this is an unwarranted intrusion on property rights of BC land owners of residential property.
Unlike the foreign buyers ban and the foreign buyers tax, Canadian citizens and PR’s are NOT exempt from this tax. Failure to file a return confirming an exemption to the tax can result in an annual tax penalty to the owner of .5% of the Assessment Value of the property if the owner is a Canadian citizen or PR or 2% if the owner is neither (or is deemed to be a satellite family member). Again, on a $1M property, that’s a tax increase of $5K or $20K respectively.
Assuming the buyers of residential real estate managed to dodge the federal foreign buyer’s ban and the BC foreign buyer’s tax, they may still be caught by the BC Speculation and Vacancy Tax provisions which relate to “untaxed worldwide earners.”
An untaxed worldwide earner, also known as a member of a satellite family, is an individual whose unreported (in Canada) income is greater than their reported (in Canada) total income. An individual’s income is combined with their spouse’s income for the purposes of this calculation.
So, if the Canadian wife in our example was registered as a 99% owner of the property, but her husband was still working abroad and earning more money outside of Canada than she earned in Canada, the wife would be considered a member of a “satellite family” and would have to pay 2% of the assessed value of the home under the Spec Tax each year (this would be the case even if the husband was not registered on the title at all).
THE MORAL OF THE STORY
Needless to say, being snagged under any of these three pieces of legislation is an unpleasant surprise (as are most surprises in the world of real estate). If you are neither a Canadian citizen or a PR and are considering buying residential real estate in BC, its recommended that you consult with a real estate lawyer and accounting advisor before you make an offer to purchase. Forewarned is forearmed.
*We contacted the BC Property Transfer Tax department to inquire as to whether it had published any policy guidelines to assist couples in making a reasonable decision as to registration of ownership where one was a Canadian or PR and the other was not. No guidelines presently exist and the suggestion was simply to read the legislation for guidance.
PAZDER LAW CORPORATON (C) August, 2023
DISCLAIMER: The forgoing is not legal advice, but is presented for information purposes only. As statutory and case law is constantly changing, always consult your own legal, financial, accounting and other professional advisors before embarking on a real estate transaction, particularly if you and/or your spouse is not a Canadian citizen or permanent resident of Canada.
Kenneth Allan Pazder
P a z d e r L a w C o r p o r a t i o n
Barristers & Solicitors
1410 – 800 W. Pender St.
Vancouver, B.C., Canada, V6C 2V6
(tel) 604-682-1509 (fax) 604-682-3196