It’s important to understand the difference between Property Tax and Property Transfer Tax.
Property Tax is the tax paid on an annual basis to the local city/municipality for the upkeep of electrical lines, roads, sidewalks, etc.
Property Transfer Tax is a one-time tax paid to the provincial government by buyers of real estate.
At the time of a sale, the solicitor for the buyer must confirm that local taxes have been paid up to date. The full year’s payment is expected to have been paid by July 1st. If payments are up to date, a Tax Certificate is issued, from which any adjustments can be made. These adjustments usually require the buyer to compensate the seller for any prepaid taxes.
Example: If your possession date is December 1st, and the seller has paid the taxes on the property for that entire calendar year, you will be expected to pay back to the seller one month (1/12th) of the taxes. If the taxes on the property were $2400 per year, you would pay $200 back to the seller. Many buyers run into difficulty if their possession date falls anywhere from May to July. At this point, the seller may not have paid that year’s property tax yet since it isn’t due until July 1st. The seller would then be responsible for their portion of that year’s taxes for the time period they had possession of the property. The buyer will be responsible for the remainder of the year – this can be an unexpected expenditure!
Property Transfer Tax
The Property Transfer Tax is payable to the BC provincial government by buyers of real estate. The tax applies to all types of real estate, whether residential, commercial or industrial. The amount of the Property Transfer Tax is 1% on the first $200,000 of the property’s fair market value and 2% on the remaining fair market value.
Example: If the fair market value of the property is $150,000 the tax payable would be $1,500.00 (1% of $150,000). If the fair market value of the property is $250,000 the tax payable would be $3,000 (1% on the first $200,000 = $2,000 and 2% on the remaining $50,000 = $1,000).
“Fair Market Value” is best described as the price that would be paid for a property on the open market (which is usually the actual purchase price paid for the property). If the transfer of property is taking place without the exchange of money, the fair market value must be the fair value of the property if it was sold on the open market. In some situations, the fair market value is set by the latest assessment received from the BC Tax Assessment Office.