Once you decide to purchase or obtain interest from a property that has been registered at the Land Title Office, it is essential that you file a property transfer tax return and pay the property transfer tax unless you have qualified for an exemption. In most cases, the property transfer needs to be completed by a legal professional. The types of transactions may include:
- Fee simple
- Quit claim
- Lease modification
- Court order
- Prepaid lease
- Fee simple
- Life estate
What is a property transfer tax?
The property transfer tax is calculated based on your property's fair market value including the land and some improvements that have been made on the day that the property was registered with the Land Title Office. Keep in mind that property transfer tax and annual property taxes are two different things. Annual property taxes are paid on a yearly basis to your rural tax or municipal office for each property that is considered to have registered interest in your area's fund services.
A fair market value refers to the price that a willing buyer would pay to a willing seller for a property and its improvements in the open market on the date the property was registered.
Open market transfers
A property transfer takes place when anyone in the open market who is interested in buying a property is capable of making an offer. An example of this is when a seller lists the property with a real estate agent. The purchase price is known as the fair market value in most cases as long as it has been sold in the open market. You will need to register the property within a few months you have signed the sales contract.
How do you calculate a property transfer tax?
There are three rates that will be taken into consideration when calculating your property transfer tax.
- General property transfer tax
- Additional 2% on residential property if it is more than $3,000,000
- Additional property transfer tax
General property transfer tax
This tax is applicable to all taxable transactions. The following scenarios explain what your general property transfer tax rate is:
- 1% of the perceived fair market value up to and including $200,000
- 2% of the perceived fair market value and greater than $200,000 and up to and including $2,000,000.
- 3% of the perceived market value and greater than $2,000,000.
Additional 2% on residential property more than $3,000,000
If your property is worth more than $3,000,000, an additional 2% tax will be applied if the residential property value is greater than $3,000,000. However, if your property is a mixed class, meaning it is classified as both residential and commercial, then the additional 2% will be applied on the residential portion of your property.
For a property that is considered as a farm only because it is used as a farmer's or owner's dwelling, a maximum of 0.5 hectares will be considered as residential property.
Additional property transfer tax
For foreign nationals, taxable trustees,s or foreign corporations, there is also an additional property transfer tax that should be paid based on the fair market value of your property's residential portion. This applies if within British Columbia's specified area.
How to estimate your property transfer tax?
You can create a rough estimate of your property transfer tax using a PTT calculator.
You will be asked four essential questions before you proceed:
- What is the full fair market value of the property?
- What percentage of interest are you acquiring in the property?
- Is the property entirely classed as residential?
- Does the additional property transfer tax apply to your transaction?
Here is a tax rate calculation example for full ownership transfers:
Person A and Person B sell their home to Person C and Person D. The fair market value of the property is $650,000 and legal ownership in the entire (100%) property transfers.
Calculate the tax payable:
1% of the fair market value up to and including $200,000 = $2,000
2% of the fair market value greater than $200,000 and up to and including $2,000,000 = $9,000 ($650,000 - $200,000 = $450,000 X 2% = $9,000)
The total tax payable is $11,000 ($2,000 + $9,000 = $11,000).