Each province in Canada has a registry of the owners of each parcel of property throughout that province’s boundaries. Any time the ownership of a parcel of property changes, there is an applicable property / land transfer tax. This kicks in when someone:
- takes over possession of a life estate, lease, or right to purchase for a particular property
- gains an additional registered interest in a particular property
- acquires an registered interest in a particular property
The dollar amount of the tax varies with the property’s fair market value, as well as the value of any improvements, such as buildings on the date when you register the title change (unless you are buying a pre-sold strata unit). An example of a pre-sold strata unit would be a condo unit that you buy well ahead of the building’s actual completion.
Here’s how the tax works:
On the first $200,000 or less: 1.0%
On the rest above $200,000: 2.0%
So if you purchase a property for $800,000, you would owe $14,000 in land transfer tax. That includes $2,000 (1.0% of the first $200,000) and $12,000 (2.0% of the remaining $600,000). For those who register a life estate on the property, the tax is based on their life expectancy. To figure out what the taxable value would be for a property under the life estate, you would multiply the fair market value of the property by the percentage that matches your life estate’s term.
What is fair market value?
The amount that a willing buyer would pay to a willing seller for a particular property (for both the land and the improvements) open an open market is considered fair market value. This is calculated for the day of the registration of the transfer.
What is an open market transfer?
If the transfer allows anyone who has a chance of being interested in buying the property to submit an offer, that transfer is deemed as an “open market” transaction. One of the most common examples of an open market transfer happens when a seller uses a realtor to list a property or advertises it for sale by owner.
When this happens, whatever the purchase price is generally counts as the fair market value, so long as the purchaser registers the property within a month or two of completing the purchase contract. If the purchaser takes significantly longer to register the transfer, then a separate appraisal may need to take place to ascertain fair market value. This is particularly common when the value of the property changes significantly, when the condition of the property undergoes considerable change, or if the buyer did not purchase the property on the open market.
What is a non-open market transfer?
Some property transfers take place under other circumstances than an open-market sale, such as a gift transfer or a bequest. In those cases, the tax authority uses an independent appraisal or the BC Assessment value, which generally reflects the fair market value from July 1 of the prior year. So BC Assessment’s value could be off, particularly if the transfer takes place in the spring of the next year. Other factors that can influence valuation include recent improvements, classification of the land as farmland, or a change in conditions in the surrounding market.
We have connections with industry professionals and lending sources throughout BC, and if we don’t already know the answer to your questions about a particular lot, we will help you find them.