What to consider before transferring your property to your family members?
Whenever you buy or gain title to real estate, you owe the government property transfer tax (“PTT”) which is based on the fair market value of the property. PTT can add up quickly, and many people forget about its costs when they buy or receive property.
The tax rate is bracketed, just like income tax. This means that the tax is 1% on the first $200,000, 2% on any portion between $200,000 and $2,000,000, 3% for the portion between $2,000,000 to $3,000,000, and an additional 2% on any portion over $3,000,000. There’s even more tax if you fall under the definition of being a foreign national. However, for the purposes of this post, let’s assume you are not a foreign national, which would trigger additional foreign buyer’s tax.
To illustrate what a Canadian citizen might be paying, let’s imagine your relative is giving you a home that is worth $5,000,000:
|Value||Tax Rate||Total Tax|
|$0 to $200,000||1%||$2,000|
|$200,000 to $2,000,000||2%||$36,000|
|$2,000,000 to $3,000,000||3%||$30,000|
|$3,000,000 to $5,000,000||2%||$40,000|
|Total tax for $5 million home:||$108,000|
It would cost you $108,000 in taxes to receive that house. Fortunately, there are certain exemptions from PTT in certain circumstances.
Below are a few of the PTT exemptions. It is not an exhaustive list nor is it to be relied upon as confirmation that you qualify for a PTT exemption. We always advise that you should speak with a qualified legal professional before assuming you fall under a PTT exemption.
Just like the title suggests, there is a PTT exemption if the property is the principal residence of either the giver or receiver.
In BC, a home is considered as principal residence if all of the following requirements are met:
- The giver or receiver “usually resided and used” the property as their home
- The buildings and other improvements on the land are designed to accommodate no more than 3 families
- The buildings are classified as residential by BC Assessment
- The land is smaller than 0.5 hectares
A person can only have one principal residence at a time, which is important to note for people who own multiple homes.
But wait, there’s more! The principal residence exemption only applies between two related individuals. In BC, this means:
- Your spouse, their child, parent, grandparent, or great-grandparent
- Your child, grandchild, great-grandchild (and their spouses)
- Your parent, grandparent, or great-grandparent
A few things to note: spouses include common law relationships; child includes step-child; and your brother, sister, aunt, uncle, niece, or nephew are not included in this exemption.
This exemption is worth taking advantage of as part of your estate planning. Who you choose to transfer your real estate to might depend on how they fit into the criteria for this exemption.
This exemption is identical to the one above. In this case, a recreational residence must meet all of the following criteria:
- The property was used by the giver or receiver on a seasonal basis for recreational purposes
- The property is classified as residential by BC Assessment
- The land is smaller than 5 hectares
- The property has a fair market value less than $275,000
Once again, this exemption only applies to transfers between related individuals.
This is a particularly useful exemption if you have a family cabin in BC where real estate prices aren’t ridiculous.
A transfer to a spouse or former spouse under a written separation agreement, or court order under the Family Law Act, qualifies for exemption. A spouse is defined as an individual who is:
- married to another person, or
- living with another person in a marriage-like relationship, and has been living in that relationship for a continuous period of at least 2 years.
To qualify, the spouse must also be a Canadian citizen or a permanent resident as defined in the Immigration and Refugee Protection Act (Canada). The exemption is not applicable if the transfer is to a corporation or third party.
Family Farm Involving Individuals
This exemption is easier and broader than the rest. A family farm is exempt from PTT if it is transferred to an eligible person, through a trust or will.
Family farms are defined as land that is used, owned and farmed by an individual, family member, or a family farm corporation.
Eligible people are simply Canadian citizens or permanent residents.
Family member includes all of the related individuals from above, plus your siblings, their spouses, kids, as well as your aunts, uncles and their spouses. It even includes your spouse’s children, parents, grandparents, great-grandparents, siblings, cousins, nieces, nephews, aunts and uncles.
As you can see, if you’re receiving a family farm from a family member, you won’t have to worry too much about PTT.
Family Farm to or from a Family Farm Corporation
This exemption is very similar to the last one. A family farm owned by a family farm corporation can be transferred to, or from another family farm corporation with no tax.
A family farm corporation simply means a corporation that mainly farms the land on the property, where none of the shareholders are corporations.
Try Our Free Property Transfer Tax Calculator!
Our Free Online Property Transfer Tax Calculator automatically tells you what you would owe by entering some basic information about your purchase.
If none of these answered your questions, or if you think your situation is tricky, give us a call at 604-559-2529, or email us at [email protected]. We’d be happy to help you with your PTT exemption.