In my continuing series, First-Time-Buyer Fridays, I answer a common question from a first-time buyer. If you have a question to submit, first-time-buyer or experienced investor, put one in the comments below, or fire me an e-mail at Tim@TimAyres.ca.
Q. What’s this about Provincial tax when I buy a home? How much is the Property Transfer Tax (PTT)?
A. I touched on this briefly in my post about closing costs in BC. The BC Property Transfer Tax (PTT), sometimes known as the Property Purchase Tax (PPT) has been a thorn in the side of home owners since its inception in 1987. BC REALTORS® have been actively lobbying the provincial government to reduce or eliminate the tax, as it places an unfair burden on home buyers.
The BC PTT is calculated on the sale price of the property (or the “fair market value” if the transfer of property is a gift or bequest), at 1% on the first $200,000 and 2% on the balance. So, a $500,000 property would incur an $8000 tax in order to change hands. This is money that comes directly out of the pocket of the buyer. It cannot be financed, eating up a nice chunk of a down payment on the purchase.
There is some relief for first-time buyers, however. First-time buyers qualify for an exemption in many cases. You do not have to pay the PTT if you are:
- a Canadian citizen or a permanent resident as determined by Immigration Canada,
- a person who has resided in British Columbia for 12 consecutive months immediately prior to the date of registration of the transfer, or who has filed two income tax returns as a British Columbia resident within the last six years,
- a person who has never, at any time, held a registered interest in a principal residence anywhere in the world (a principal residence is defined as the usual place where an individual resides), and
- a person who has not previously received an FTHB exemption or refund.
The purchase price of the property must not be more than $425,000 to qualify for an exemption. Government has raised the exemption threshold in recent years, reflecting the increase in property prices across the province. For properties between $425,000 and $450,000, a partial exemption applies.
To calculate the partial exemption, you first need to figure out the tax that would be payable without an exemption. Let’s use a $435,000 property as an example. The tax at 1% on the first $200,000 an 2% on the balance on that property would be $6700. Then plug it into this formula:
(Partial exemption max price – purchase price) x Tax = exemption, subtract from tax.
(Partial exemption dollar threshold)
So, for this example,
(450,000 – 435,000) x 6700 = $4020. $6700 – $4020 = $2680 tax payable.
There are several other conditions and details about the PTT exemption, that are covered in this PTT Brochure.
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