Other

Here is what we know: 1. There are no changes to the first time home buyer exemption limits; 2. All buyers (whether first time buyers or not) no longer pay PTT on purchases of NEW homes up to $750,000 in value; note the buyer must be a Canadian citizen or a permanent resident; there is a partial exemption for homes between $750,000.00 and $800,000.00; 3. PTT has changed so that there is now a 3% tax on amounts over $2,000,000.00. The 3% tax is only paid on the amount over $2,000,000.00, not the full price. These are effective for deals closing today and going forward. We had one client close on a new home yesterday, and we believe they are out of luck. We also had one client that was to close today on a $4,000,000.00 purchase, but we moved the completion to yesterday to save the client $20,000.00 in PTT.

Below is from the BC Government Website:

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.

For example, if you qualify and purchase a property with a fair market value of $400,000 with a person that 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 B.C. for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a B.C. 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

and the property must:

• be located in B.C.
• only be used as your principal residence
• have a fair market value of:
• • $425,000 or less if registered on or before February 18, 2014, or
  • $475,000 or less if registered on or after February 19, 2014
• be 0.5 hectares (1.24 acres) or smaller

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

• has a fair market value less than:
• • $450,000 if registered on or before February 18, 2014, or
  • $500,000 if registered on or after February 19, 2014
• is larger than 0.5 hectares
• has another building on the property other than the principal residence

Find out the amount of your exemption if you qualify.

If you don’t qualify because you are not a Canadian citizen or permanent resident, but you become one within 12 months of when the property is registered, you may apply for a refund of the tax. To apply for a refund call (250) 387-0604.

Apply

To apply for the First Time Home Buyers’ Program you need to complete the First Time Home Buyers’ Property Transfer Tax Return when you or your legal professional register the property transfer.

After you have applied you must meet additional requirements during the first year you own the property to keep the tax exemption.

Penalty for False Declaration

All applications are reviewed. You will be charged a penalty equal to double the tax if you falsely declare that:

• you have never owned an interest in a principal residence anywhere in the world at any time, or
• you have never received a first time home buyers’ exemption or refund

First Year of Ownership

At the end of the first year you own the property you will receive a letter. The letter is to conditionally confirm that you meet the occupancy and property value requirements after you:

• purchased an existing home, or 
• purchased vacant land and built a home

Existing Home

To keep the tax exemption you must have:

• moved into your home within 92 days of the date the property was registered
• continued to occupy the property as your principal residence for the remainder of the first year

You may keep part of the exemption if you moved out before the end of the first year.

If the owner passed away, or the property is transferred because of a separation agreement or a court order under the Family Law Act before the end of the first year, you still qualify to keep the tax exemption.

Built New Home

If you registered a vacant lot and built your own home, to keep the tax exemption:

• the fair market value of the land when you registered the property plus the cost to build your home must be:
• • $450,000 or less if registered on or before February 18, 2014, or
  • $500,000 or less if registered on or after February 19, 2014
• you must have built and moved into your home within 1 year of the date the property was registered
• you must have continued to occupy the property as your principal residence for the remainder of the first year

You may keep part of the exemption if you moved out before the end of the first year.

If the owner passed away, or the property is transferred because of a separation agreement or a court order under the Family Law Act before the end of the first year, you still qualify to keep the tax exemption.

Copyright © 2015, Province of British Columbia

Ask The Expert: Do I Pay GST on a Never-Occupied Unit?

Barry Magee
REW

 Q: I’m looking for a newer condo, and I know that if I buy a new presale unit, I would have to pay GST on the purchase price. So if I were to purchase a resale property that is a couple of years old and has never been occupied, am I excluded from having to pay GST on it?

A: With the amount of development happening in Vancouver and the political talk around affordability that is ongoing, this is definitely an intriguing question. The perhaps-surprising answer to your question is no, you are not excluded from paying GST in this scenario. There are a number of situations where paying GST will still be applicable.

Most people don’t know this, but if the unit has been left unoccupied, it is still considered new upon resale of the unit. The federal government considers this transaction a transfer of unoccupied inventory from one developer to another, so GST would be payable upon the resale transaction.

So this brings a whole new issue into play. With vacancy being a target of the recent taxation scheme proposed by UBC professors to address housing affordability, this could be a loophole that can be exploited by an astute real estate investor.

An example I heard recently was one where an investor purchased a property for $500,000 and paid $25,000 GST on the unit. They decided not to occupy or rent the unit, and were able to sell it a year and a half later for $600,000, because of Vancouver’s increasing prices.

The new buyer wasn’t aware of this, but because the unit had been left unoccupied, the purchase was subject to paying five per cent tax, even though the building had been completed a year and a half ago. In addition to this, the seller was able to get their original $25,000 GST refunded to them from the province. So the investor made a clear $100,000 profit. A perfect example of real estate speculation at its best.

Another exemption is when someone uses a property for a business purpose for more than 50 per cent of their ownership. So if you are buying from someone who used the residence to generate income, you need to check whether or not GST is payable on the unit.

Yet another situation where you may be forced to pay GST on a resale unit is when it has claimed input tax credits or has undergone a substantial renovation.

You can find out more about the how the government views these situations on the CMHC website here. 

While it’s unlikely an investor would buy a unit specifically to exploit this loophole, as a buyer it is something you should very much be aware of. Getting a bill for $30,000 when you aren’t expecting it isn’t on anyone’s priority list. And with the amount of new developments we see being constructed around the city, I think more people will come across this as they purchase units that are a few years old.

If we see any new tax system implemented like the one being discussed at the Sauder School of Business these days, I think it’s very likely we will see an increase in the amount of inventory available, especially in the newer developments we see everywhere around the city, as investors offload their units to avoid the vacancy tax.

As a buyer of one of these resale/new units, you should definitely make sure you are fully informed what the status surrounding GST on the unit is before becoming invested in the property.

© 2023 REW.

Matt Maurer
Other

The Ontario Superior Court has once again underscored how completing a seller property information statement (SPIS) can be a risky move for vendors.

When it comes to the purchase and sale of real estate the starting point for any analysis is “buyer beware”. For those looking to impress at cocktail parties, the specific expression is “caveat emptor, quit ignorare non debuit quod jus alienum emit,” which translates into “let the purchaser, who is not to be ignorant of the amount and nature of the interest, exercise proper caution.”

This general rule of buyer beware applies to defects that a purchaser could have discovered by means of a routine inspection (known as a “patent defect”) and also “latent defects” (those not discoverable by routine inspection, which are unknown to the vendor).

Notwithstanding the purchaser’s obligation to do their own due diligence, the rule of buyer beware goes out the window once the vendor has made a misrepresentation.

A SPIS is a standard form document that was drafted by the Ontario Real Estate Association. It will contain information relating to defects, renovations and other pertinent property information based on the seller’s knowledge and experience.

A vendor is not obligated to complete a SPIS and if the vendor elects to do so they open themselves up to significant legal risks.

The law in Ontario is that once a vendor completes a SPIS it creates the relationship necessary in law to hold a vendor legally responsible if the information contained in the SPIS is wrong or misleading. Although the buyer has a duty to investigate, the buyer is not required to challenge the honesty of the vendor and is entitled to rely on the representations made by the vendor as though they were true.

A recent decision (Ménard. v Parsons, 2015 ONSC 4123 [CanLII]) illustrates how the courts are willing to expand the vendor’s obligation to make full and fair disclosure once they have elected to complete a SPIS.

In Ménard, the property in question was a beautiful home that had been constructed by the vendor on two large manicured lots. The only catch is that the home was built on top of a discontinued landfill site, a fact well known to the vendor.

The vendor completed a SPIS. The two pertinent questions and answers for the purpose of the litigation were as follows:

1. “Are you aware of possible environmental problems or soil contamination of any kind on the property or in the immediate area? E.g.: radon gas, toxic waste, underground gasoline or fuel tanks etc.”

Answer: “Unknown”

2. Are there any existing or proposed waste dumps, disposal sites or landfills in the immediate area?

Answer: “Yes”

Of particular interest for this article is how the court treated the answer to question number two.

Around the time of the transaction there was a “notorious battle” in town and the surrounding area concerning the prospect of a chemical disposal site being constructed. This battle was constantly in the local news. The purchasers testified at trial that they believed the answer to question two to be in reference to the proposed chemical disposal site. The court held at trial that answering “yes” without any further explanation in the circumstances of this transaction was misleading to the point that it constituted a legal misrepresentation.

The purchasers discovered the existence of the discontinued landfill prior to the closing of the transaction and refused to close. The vendor ultimately sold the property to another purchaser for $100,000 less and sued the initial purchasers for the loss. The court dismissed the plaintiff’s claim and awarded the initial purchasers their out of pocket expenses in respect of the aborted transaction for a number of reasons, including the misrepresentation that was held to have been made in respect of question number two.

Again, vendors are under no obligation to complete a SPIS. In doing so, vendors open themselves up to liability and displace the fundamental principle of buyer beware.

The Ménard decision and the court’s treatment of the answer to question number two is demonstrative of the risks that vendors expose themselves to by completing a SPIS.

© 2015 REM Real Estate Magazine

Other

While you cannot leave a property to your spouse without paying tax, there is an avenue available where a bequest can avoid the clutching hands of the U.S. Internal Revenue Service.

“A marital deduction is available for assets which pass to a spouse who is a U.S. citizen,” Robert E. Ward, J.D., LL.M., of Ward Chisholm P.C. “Generally, assets must pass directly to the spouse, either as a bequest or as a result of co-ownership – as tenants-by-the-entirety or as joint tenants with rights of survivorship. However, bequests to certain types of trusts for the benefit of a spouse may also qualify.”

For those Canadians who aren’t married to U.S. citizens – and there are quite a few of us – there is more than one way to skin a cat and avoid the U.S. estate tax.

“In order for a bequest to a non-citizen spouse to qualify for the marital deduction in computing the U.S. estate tax,” says Ward, whose background of expertise includes tax law, business planning, estate planning, international taxation and tax planning and foreign trusts, “the bequest must be made to a special type of trust that satisfies the requirements of section 2056A of the U.S. Internal Revenue Code – referred to as a “Qualified Domestic Trust” or “QDOT”).”

While taking this route will avoid the tax man – it will only do so for a short period of time.

“The marital deduction and the QDOT defer rather than avoid U.S. estate taxes,” says Ward. “In both cases, the assets passing to or in trust for the benefit of the decedent’s spouse will be subject to U.S. estate taxation when the spouse dies.”

The net estate is subject to U.S. estate taxes computed at rates of 18 per cent to 40 per cent under the current law.

But all is not lost.

There are credits which may reduce the tax due after the U.S. estate tax liability is computed on the value of the decedent’s assets net of deductions.

First, the estate is entitled to an estate tax credit for foreign taxes paid at the time of the decedent’s death (such as Canada’s tax on deemed dispositions at death).  Second, there may be special circumstances which give rise to special tax credits.

“For example, the decedent’s estate may include property received within 10 years of death which was previously subject to a U.S. estate tax,” says Ward. “Third, regardless of the availability of any other credits, the estate of every non-U.S. person who owns U.S. situs assets is entitled to an estate tax credit of $13,000.”

This results in an exemption of the first $60,000 of U.S. situs assets from U.S. estate taxation at the death of the non-U.S. person.

Also, there can be some relief from estate taxes provided by the Tax Treaty between Canada and the U.S. – but that can provide a false sense of security.

First, computation of the denominator is based upon U.S. estate tax principles (the total fair market value of the Canadian resident’s worldwide assets).

“The denominator will include not only the Canadian resident’s bank accounts, brokerage accounts, all forms of real and personal tangible property,” says Ward, “it will also include the death benefits payable under policies insuring the life of the Canadian resident, as well as the account balances in the retirement and savings plans of the Canadian resident, such as RRSPs, RRIFs, TFSAs, and RESPs.”

The numerator in the equation is the fraction is the total fair market value of U.S. situs assets owned by the Canadian resident.

Copyright © 2015 Key Media Pty Ltd

RECBC News
Other

The Council has become aware that some owner-built homes in the province are being offered for sale illegally. Are you confident that the homes you are helping clients to buy or sell can be legally sold? 

Before a property owner builds their own home, or substantially reconstructs their own home, they must apply for an Owner Builder Authorization from the Homeowner Protection Office (HPO). Then, they must occupy their home themselves for the first year following construction. During that year, the home can’t be sold or rented. After the first year, and for the next ten years, any prospective buyers must receive an Owner Builder Disclosure Notice – whether they are buying the home from the owner-builder, or from subsequent owners.

Before listing a property or before assisting a client to make an offer on a property, as a licensee you have a responsibility to take appropriate steps to ensure that a home can be legally sold. Owner-builders who sell homes before the one year occupancy period has ended, or who don’t provide the Owner Builder Disclosure Notice to buyers, can face legal proceedings under the Homeowner Protection Act. And licensees could face an investigation and potential discipline for not acting in the best interests of their clients.

Avoid the Risks: Take Steps to Ensure a Home Can be Legally Sold

 STEP 1: Search the HPO’s New Homes Registry. Enter the home’s address or legal description to find out if the home has a policy of home warranty insurance, or if it is built under an exemption, such as an Owner-Builder Authorization. Checking online is a fast, simple way to find out if the home can legally be offered for sale – and it’s recommended whether you are acting for a seller or a buyer.

STEP 2: Advise owner-builder clients to file occupancy permit information promptly, so the HPO can verify the information and provide an Owner Builder Disclosure Notice well in advance of any offers for sale.

STEP 3: Ensure that any prospective buyers within the ten-year period receive an Owner-Builder Disclosure Notice. Insert the Receipt of Owner-Builder Disclosure Notice Clause into the Contract of Purchase and Sale to confirm that the buyer received the notice.

© Copyright Real Estate Council of British Columbia

Jennifer Clee
Other

Olivia D’Orazio
Other

If you’re looking for those guilty of breaking TREB’s new rules on sharing sold-data, you need look no further than a growing number of agent flyers.

“You’re not allowed to disclose the price,” says Ken Ramsay, an agent in Toronto who has seen this kind of illegal marketing in his own neighbourhood. “I concentrate online now, but I’ve had to take sold listings off my site.”  

Like Ramsay, fewer agents are using the marketing technique, but many still distribute flyers throughout a target neighbourhood, boasting the selling prices of various properties in the area. These flyers, intended to entice potential sellers, are in violation of the Toronto Real Estate Board’s rules regarding published sold data.  

“I started weeding down (on flyering) because I found it ineffective compared to other ways of marketing, such as the Internet,” says Ira Jelinek, a Toronto-based agent. “You don’t give out all the information, so you don’t put the sale price, and gives the neighbours a reason to call you.”  

Jelinek and Ramsay agree that releasing sold data to the neighbourhood could be embarrassing for the sellers.  

“I have some clients who were curious to see what the neighbour’s house sold for but the seller might want to keep it private,” Ramsay says. “If your house sold for a crazy high number or a low number, it could be embarrassing (to have that broadcast).”  

The Competition Bureau claims the privatization of sold data is anti-competitive on TREB’s part, and the Bureau and the Board have been in and out of hearings since 2011. At the latest hearing in May, TREB will argue that the data should be kept private since its membership pays for the collection and the organization of the information by way of their fees.  

“We shouldn’t have to give (sold data) away to the public for free,” says Elaine Smallwood, a 25-year real estate veteran in Ottawa. “We have invested in this – it’s a business investment. To be told this isn’t yours, it belongs to the public, I believe the boards need to stand up for our rights, and that isn’t what’s going on.”  

While the debate over making sold data public is far from over – the Toronto board will sit before a tribunal in May to continue conversations with the country’s competition bureau – many agents see the value in this type of marketing. However, many more are not willing to risk their licenses, and by extension, their livelihoods.  

“(Breaking the rules) could hurt you,” Jelinek says. “Of course it’s not worth the trade-off.”

Copyright © 2015 Key Media Pty Ltd

Don’t Play Follow the Leader

Other

VERIFYING THE IDENTITY OF UNREPRESENTED PARTIES, VERIFYING IDENTITIES OF THIRD PARTIES

Other

Other

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