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What You Need to Know about the First Time Home Buyers’ Property Purchase Tax Exemption

What You Need to Know about the First Time Home Buyers’ Property Purchase Tax Exemption

As you may know, the buyer of an interest in real estate in BC must pay property transfer tax on the closing date of the purchase totaling 1% of the first $200,000.00, and 2% on the remainder of the fair market value of the property purchased (up to $2,000,000.00). Property transfer tax is payable at a rate of 3% on the portion of the fair market value (usually the purchase price) that is over $2,000,000.00.

Kelowna Real Estate: First Time Home Buyers Property Purchase Tax

The First Time Home Buyers’ Property Purchase Tax (“PPT”) exemption is available for someone who has never owned an interest in real estate. This exemption will provide either a full or partial exemption from PPT. To qualify for this exemption the purchaser or purchasers claiming the exemption must complete and sign the appropriate application when completing the property tax return meet the following requirements:

  1. be a Canadian citizen or permanent resident;
  2. be resident in B.C. for 12 consecutive months before the closing date or have filed at least 2 income tax returns as a B.C. resident during the last 6 years;
  3. never previously owned an interest in a principal residence anywhere in the world; and
  4. never previously received a first time home buyers’ exemption or PPT refund

Additionally, the property must qualify for the PPT exemption as follows:

  1. residential real property located in B.C.;
  2. used as the buyer’s principal residence (i.e. not a rental property or recreational property);
  3. have a fair market value (i.e. purchase price under an arm’s length purchase agreement) of no more than $475,000; and
  4. have a lot size of no more than 0.5 hectares (1.24 acres).

A partial PPT exemption is available if:

  1. the property has a fair market value of no more than $500,000;
  2. has a lot size larger than 0.5 hectares; and
  3. has another building on the property other than the principal residence.

To find out the amount of the exemption you qualify for, see: First Time Home Buyers’ Exemption Amounts

A buyer who is not a Canadian citizen or permanent resident, but becomes one within 12 months of the closing date of the purchase may apply for a partial refund of PPT paid on the purchase by calling (250) 387-0604 or emailing at [email protected].

Kelowna Law Firm Explains PPT Exemptions

All PPT exemption applications are reviewed or audited by the province. If it is found that a buyer claims a first time buyer PPT exemption they do not qualify for, the buyer will be charged a penalty equal to double the tax if it is found that the buyer did actually own an interest residential property anywhere in the world at any time, or the buyer previously received a first time home buyers’ PPT exemption or refund.

To preserve or keep the PPT exemption at the end of the first year of ownership, the buyer will receive a letter requesting the buyer to confirm they met the occupancy and property value requirements, and

  1. the buyer moved into an existing home within 92 days of the closing date and continued to occupy the property as their principal residence for the remainder of the first year of ownership ; or
  2. If the buyer purchased a lot and built a home, to keep the tax exemption:
    • the fair market value of the lot plus the cost to build must be no more than $500,000;
    • the buyer must have completed and moved into the home within 1 year of the closing date of the lot purchase; and
    • the buyer occupied the home as a principal residence for the remainder of the first year

A buyer moving out of the home during the first year may keep part of the first time buyer exemption. A buyer who passes away, or must transfer his or her interest in the property because of a separation agreement or a court order under the Family Law Act before the end of the first year of ownership will be allowed to keep the PPT exemption.

Real Estate Qualifications: First Time Home Buyers PPT

Some planning is required to claim the first time home buyer’s exemption from PPT. Obviously, if a qualified buyer is new to B.C., rent for a while before you buy, or if you have found the home of your dreams, rent it with an option to purchase exercisable after the year is up.

Be sure to pick a property that will qualify for the exemption. Don’t overspend. While we are on this topic, if a buyer (whether as a first time buyer or not) is planning to benefit from the GST rebate on new housing, price point planning is necessary. The GST rebate tops out at $6,300 for a home with a purchase price of $350,000. The GST rebate on new housing gradually reduces for homes valued between $350,000 up to a maximum of $450,000, when it disappears altogether.

Being in a spousal relationship can also provide other planning options. Many spouses (married or common law) plan to own their home as joint tenants to provide automatic rights of survivorship if one passes away. While this can be very useful or helpful for estate planning purposes, consider a change of plan to minimize the PPT they pay.

If one of two spouses qualifies for the first time buyer exemption, the qualifying buyer should be the only purchaser of the property to take full advantage of the exemption. Otherwise, their PPT exemption will be limited to the portion of the property owned by the first time buyer and if ownership is joint, the exemption will be limited to 50% of the PPT payable on the purchase. Keep in mind a mortgage lender supporting the purchase must be willing to lend with only the qualified buyer as owner, perhaps with the other spouse signing the mortgage as covenantor or guarantor. If the lender requires both buyers to be a registered owner, then the ownership interest of the non-qualifying owner should be kept to the minimum possible (i.e. an undivided 1/ 100th or 1/1000th interest) to maximize the exemption claimed by the qualifying owner.

With the one qualified buyer/one non-qualified buyer, if the home is owned in one person’s name and they prefer to own it jointly, then after they have lived in the home for 12 months, there is another PPT exemption available on the transfer of a joint interest in a principal residence to a spouse (this exemption is available after 6 months of ownership and occupation of the property as a residence, but wait at least 12 months to preserve the full first time home buyer exemption). The legal cost to do the two stage transfer will usually be far less than the PPT saved, but be sure the mortgage lender will consent to the transfer without requiring a mortgage modification as well, which will increase your legal costs. Also you want to know that your mortgage lender won’t call the loan and demand to be paid out (i.e. forcing a refinance) due to an unauthorized transfer of the property.

If both spouses qualify for the first time buyer’s exemption, and they are optimistic and believe they will own more than one home during their lives together, have only one spouse purchase and own their first home to claim the full first time buyer PPT exemption. When they sell and move into another home, have the other partner buy and own the second home and claim a second exemption. Again, mortgage lender cooperation is required for that to work, so shop for a lender who will cooperate with this plan.

Hopefully you have found this to be of assistance. If you have any questions about the first time home buyer PPT exemption, any other PPT exemption, or any question about buying, selling, or financing real estate, call us.

Roy Sommery is a business, real estate & lending transactions and will & estate planning lawyer at Doak Shirreff Lawyers LLP.
Roy can be reached at [email protected] or 250-979-2528.