Owning property in BC can be a very smart investment. There is no restriction on the number or types of property a non-Canadian citizen can purchase. However, if you are a foreign buyer considering investing in Canadian real estate, there are important tax implications to factor into your decision to acquire property and how you structure the purchase.
Tax considerations for BC real estate investing
Canada’s real estate market is provincially regulated, so there are specific tax rules that apply to buying BC property. Here are some of the top tax considerations:
- Additional Property Transfer Tax (also known as the “Foreign Buyers’ Tax”). All BC real estate purchases are subject to property transfer tax of 1% to 3% of the fair market value of the property. BC real estate investments by foreign buyers may also be subject to an additional property transfer tax of 20% of the property’s fair market value, but only if the property in question is located in specified areas of BC (including Metro Vancouver, Fraser Valley, Nanaimo, and the Okanagan). The additional property transfer tax applies to the proportionate share purchased by a foreign national, foreign corporation, or taxable trustee. The additional tax is due when transfer of title is registered, but there are exemptions. If you hold a valid BC nomination for a permanent residence application at the time of buying the property and you intend for the property to be your principal residence, you may be exempt from the foreign buyers’ tax. You may also be eligible to claim a refund of the tax if you become a Canadian permanent resident or citizen within one year of buying property in Canada and move into the subject property within a certain period of time.
- Empty Homes Tax. This “vacancy tax” is a special consideration for those investing in residential property in Vancouver. Properties deemed empty are subject to a tax of 1% of the property’s 2019 assessed taxable value. For the 2020 vacancy reference year, the tax is increasing to 1.25%. A Vancouver property will not be subject to the vacancy tax if it is the homeowner’s principal residence, or if the home is rented for at least six months of the year. All Vancouver homeowners are required to submit a status declaration each year to determine if the property is subject to the tax.
- Withholding tax on rental of Canadian real estate investments. Non-Canadian residents who collect rent on property in Canada are subject to a 25% withhold tax on the gross rent received. However, a foreign property owner can apply to the Canada Revenue Agency (“CRA”) so that the withholding tax only applies to net income, making the non-Canadian property owner able to deduct expenses such as mortgage interest, property taxes, maintenance, and repairs.
If you are thinking about buying property in Canada, contact Invicta Law Corporation today for trusted advice.
