1 May

BC’s Property Transfer Tax & First-Time Home Buyers

BC

Posted by: Kelly Hudson

What is Property Transfer Tax?

Property Transfer Tax (PPT) is a tax payable to the BC Provincial Government by purchasers of real estate in BC.  The tax applies to all types of real estate, whether residential, commercial or industrial.

  • Property Transfer Tax arrived on March 7, 1987, with Social Credit premier Bill Vander Zalm government’s first budget and it has survived every change of government since then.

How is PPT calculated?

In BC you are charged property transfer tax when you make changes to a property’s title

The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit.

The property transfer tax rate is:

  • 1% on the first $200,000,
  • 2% on the portion greater than $200,000 and up to and including $2,000,000
  • 3% on the portion greater than $2,000,000, and
  • if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).

What is Fair Market Value? 

Fair market value is the price that would be paid by a willing purchaser to a willing seller for a property in the open market on the date of registration.  This is usually the actual purchase price paid for the property.

What is the “Additional Property Transfer Tax”, or what is sometimes called the “Foreign Buyers Tax”?

In addition to the property transfer tax, if you are a foreign national, foreign corporation or taxable trustee, you must pay the additional property transfer tax on your proportionate share of a residential property transfer if the property is within specified areas of B.C.

Your proportionate share is the percentage of interest that you are registering on title with the Land Title Office.   If the property transfer is registered on or after February 21, 2018 and is within the following areas, the tax amount is 20% of the fair market value of your proportionate share:

For additional information check out “Foreign Buyers Tax”

How does a buyer qualify for the First Time Home Buyers Exemption?

You may qualify to reduce the amount of tax you need to pay if:

First Time Home Buyers’ Program

The First Time Home Buyers’ Program reduces or eliminates the amount of property transfer tax you pay when you purchase your first home.  If you qualify for the program, you may be eligible for either a full or partial exemption from the tax.

If one or more of the purchasers don’t qualify, only the percentage of interest that the first-time home buyer(s) have in the property is eligible.

  • e. if you qualify and purchase a property with a fair market value of $400,000 with a person who doesn’t qualify you would still qualify. If you owned a 60% interest in the property, 60% of the tax amount would be eligible for the exemption.

Do I Qualify?

To qualify for a full exemption, at the time the property is registered you must:

  • be a Canadian citizen or permanent resident
  • have lived in BC for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a BC resident in the last 6 years
  • have never owned an interest in a principal residence anywhere in the world at any time
  • have never received a first-time home buyers’ exemption or refund

Purchaser must move into the property within ninety-two days after registration of the purchase of the property and reside in the property for at least one year; and the property must:

  • be located in BC
  • only be used as your principal residence
  • have a fair market value of $500,000 or less
  • be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption from the tax if the property:

To estimate Your Property Transfer Taxes Click here

Newly Built Home Exemption

To qualify for the Newly Built Home Exemption and avoid paying the Property Transfer Tax, the following criteria must be met:

  • The property must be newly built, as defined in the legislation
  • The Buyer must be an individual (may not be in a company name, trust, etc.)
  • The Buyer must be a Canadian citizen or permanent resident
  • The property must be used as the principal residence of the Buyer, who must move into the property within ninety-two days after registration of the purchase of the property and reside in the property for at least one year;
  • To obtain a full exemption, the purchase price must not exceed $750,000. A partial exemption is available for homes between $750,000 and $800,000
  • The property must be 1.24 acres or smaller.

If you qualify for the exemption, you may be eligible for either a full or partial exemption from the tax.

If you paid property transfer tax when you purchased vacant land and you now have a newly built home on the land, you may be eligible for a refund of the property transfer tax you paid.

Do I Qualify?

To qualify, the property (land and improvement) transfer must be registered at the Land Title Office after February 16, 2016 and you must be:

  • an individual
  • Canadian citizen or permanent resident (you will be asked to provide your Social Insurance Number (SIN) or proof of permanent residency and your birthdate)

and the property must:

  • be located in B.C.
  • only be used as your principal residence
  • have a fair market value of $750,000 or less
  • be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption, if the property:

  • has a fair market value greater than $750,000 and less than $800,000
  • is larger than 0.5 hectares
  • has another building on the property other than the principal residence

To estimate the amount of your exemption Click Here 

Are there other exemptions?

Yes, such as a transfer of a principal residence between family members. For details on this and other exemptions, go to Property Transfer Tax Exemptions

Please note:  Property Transfer Tax should not be confused with Property Tax. Property Tax is the tax paid on an annual basis to the local City/Municipality where the property resides.

The Property Transfer Tax is a one-time tax paid to the BC Government by purchasers of real estate.

The Property Transfer Tax Act frequently changes along with the exemptions for payment of this Tax – for current information Click Here

Mortgages are confusing… Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

11 Apr

History of Mortgage Changes up to April 2018

BC

Posted by: Kelly Hudson

Every time you turn around, seems like there is another change to qualifying for a mortgage. Let’s walk through some of the mortgage changes over the years…

History of mortgages in BC

Before 2007-2008

During this time, lending and mortgages policies were much more lenient! 100% financing was available, 40-year amortizations, cash back mortgages, 95% refinancing, 5% down payment required for rental properties.  You could qualify for Fixed and Variable term mortgages at the discounted contract rate. There was NO limit for your Gross Debt Servicing (GDS) if your credit was strong enough. Lenders had relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non-subject and subject properties.

The financial crisis of 2007–2008, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the United States and developed into a full-blown international banking crisis.

Due to the financial crisis, the Canadian government got involved, therefore many new mortgage rules have been implemented over the last 10 years.

July 2008
We saw the elimination of 100% financing, the decrease of amortizations from 40 to 35 years.  The introduction of minimum required credit scores. Total Debt Servicing (TDS) could be maxed out to 45%.

April 2010
Variable Rate Mortgages, along with 1, 2, 3 & 4 year Fixed Term Mortgages now need to be qualified at the 5-year Bank of Canada’s posted rate. If you had a 5 year Fixed mortgage, you could qualify at the discounted contract rate.

Investments properties, which previously needed only 5% down payment, now require a minimum 20% down payment. Introduction of new guidelines which factored in rental income, property taxes and heat for affordability.

March 2011
The 35-year amortization was dropped to 30 years for conventional mortgages. Refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit.

July 2012
30-year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down payment). Refinancing also dropped down from 85% to the current 80%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging.  The disappearance of true equity lending. The largest changes were:
• Ban mortgage insurance on any million-dollar homes
– 20% minimum requirement for down payment for homes over $1m
• Elimination of cash back mortgages
• Federal guidelines introduce a minimum 5% down payment on owner occupied homes

February 2014
Increase in mortgage default insurance premiums. *
  • By law, anyone putting down less than 20% of the purchase price of a home in Canada must pay mortgage insurance, even though the homeowners themselves don’t benefit from that coverage. Rather, it’s a fee, borrowers pay so, if they default on loans, their lenders aren’t on the hook, instead, an insurance payout would cover any defaulted loans.

February 2016
Minimum down payment rules changed to:
• Up to $500,000 – 5%
• Up to $1 million – 5% for the first $500,000 and 10% up to $999,999
• $1 million plus homes require 20% down payment (no mortgage insurance available)
• Exemption for BC’s Property Transfer Tax on NEW BUILDS regardless if one is a 1st time home buyer with a purchase price of $750,000 or less.
– BC Property Transfer Tax (PPT) arrived March 7, 1987, with Social Credit premier Bill Vander Zalm government’s first budget and it has survived every change of government since then.

July 2016
The introduction of the foreign buyer tax stating that an ADDITIONAL 15% Property Transfer Tax (only to Metro Vancouver) is applied for all non-residents or corporations that are not incorporated in Canada purchasing property.

October 17, 2016: Mortgage Stress testing
Mortgages with less than 20% down payment (requiring Mortgage Default Insurance) now have to qualify at Bank of Canada 5 year posted rate (currently 5.14%).

November 30, 2016: Monoline Lenders
Portfolio Insured mortgages (Monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 million and must be owner-occupied.

March 17, 2017
Increase in mortgage default insurance premiums.*

2018 April 2018What about 2018??

January 2018: The Office of the Superintendent of Financial Institutions (OSFI) announces Stress Testing for all mortgages, no more bundling and other restrictions
• If your mortgage is uninsured (greater than 20% down payment) you will now need to qualify at the greater of:
– the five-year benchmark rate published by the Bank of Canada (currently 5.14%)
– OR the contractual mortgage rate +2%
• Lenders will be required to enhance their Loan to Value (LTV) limits so that they will be responsive to risk. This means LTV’s will need to change as the housing market and economic environment change.
• Restrictions will be placed on lending arrangements that are designed to circumvent LTV limits. This means bundled mortgages will no longer be permitted.

*A bundled mortgage is when you have a primary mortgage and pair it with a second loan from an alternative lender. It is typically done when the borrower is unable to have the required down payment to meet a specific LTV.

February 2018 – Premier John Horgan’s NDP government took steps to dampen speculation with BC real estate by imposing a new speculation tax and increasing the foreign buyers tax to 20%.
• Both measures are aimed at slowing the flow of global capital (that critics say is driving up BC home prices) and extends beyond Metro Vancouver.
• Raising the foreign buyer tax from 15% to 20%. The higher tax now covers Victoria and Nanaimo land districts on Vancouver Island, the Fraser Valley, Kelowna and West Kelowna.
• The speculation tax, is intended to get tax from absentee investor homeowners who often declare little or no income tax in BC but are believed to have substantial global incomes. The tax will start at 0.5% of a home’s assessed value for the 2018 tax year and increase to 2% in 2019.

BOTTOM LINE: How can you keep up with all the mortgage changes?

The home buying industry has always been one of change, which has shifted and altered based on the economy and what is currently going on in Canada and BC.

Question marks Mar16To understand mortgages, you need to work with a mortgage broker!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com