As part of our feature in the Langley Times, Real Estate Resource 2017 Guide (distributed out to homes across Langley in March), and our ongoing commitment to helping our clients and their families, we put together an article singling out the top three real estate issues facing clients today. Solving our client’s real estate and land law issues is just part of our highly-skilled counselling. So, too, is educating our clients and our hope is that this article helps you to be better informed when you find yourself sitting opposite a lawyer – during your next real estate transaction.
1/ Property Transfer Tax 101
With all the media attention on property transfers to foreign entities, you’ve most-likely heard about the PTT. What you might not know is that the PTT was originally created in British Columbia in 1987 intended, in part, to fund construction of the Coquihalla Highway and to diversify the province’s revenue sources.
PTT rates for Canadian citizens and residents are calculated as a percentage of the property’s fair market value: 1% on the first $200,000; 2% on values in excess of $200,000 up to and including $2,000,000; and 3% on any portion of the purchase price above $2,000,000. Effective August 2, 2016, an additional PTT of 15% applies to residential property transfers to foreign purchasers and foreign entities such as companies. This additional PTT does not apply to non-residential property.
When clients understand how the PTT is calculated, we are often asked: How can I lessen this tax? A simple strategy to reduce your tax bill would be to buy a junker (an undervalued property) and repair the building on the property, or buy an undeveloped but serviced lot and construct a home or building on the property. The value of the improvements or new construction will not be taxed by the PTT.
This is simply an example. Everyone’s circumstances are different so there is not a universal solution. Instead, we recommend involving a lawyer and tax advisor early on in the transaction to have a plan in place before property title changes.
2/ To Gift Or Not To Gift, That Is The Question
The escalation of land prices has made it difficult for first-time homebuyers to enter the Fraser Valley real estate market. While there are many government assistance programs in the form of tax exemptions and repayable no-interest loans available, family assistance is often the most practical way.
Too often parents and/or grandparents ask us: (1) Does this type of monetary gift resemble a loan or a gift? (2) Do we need to do something to protect our assistance?
While it is wonderful to be able to help your children and relatives, first and foremost – you have to protect yourself. In addition, monetary gifts like this complicated by a lenders’ strict financing terms.
We advise clients to discuss the implications of using monetary gifts with your family member’s lender, in advance, to find an optimal solution. As counsel, we need to warn you that there is a larger concern in this type of arrangement relating to family law and equality in a family’s estate plan. While recent changes to the Family Law Act make it less onerous than previous legislation, guardians, parents, and grandparents would be wise to have funds advanced to family members in the form of a documented loan – in the event of a failed marriage or relationship.
Ultimately, monetary gifts are a minefield and every form of assistance that a parent or grandparent wants to provide should have input from a lawyer experienced in all aspects of estate planning and real estate law to ensure you protect both your gift and your loved ones.
3/ Don’t Underestimate Probate
Did you know that 51% of Canadians expect to leave assets upon their death, and 33% are undecided? An estate plan is always recommended if you have any assets, and it is essential to effectively deal with probate.
Probate is a process that verifies a will is real under BC laws, and is the usual manner for transferring assets on death to the next generation. An estate will incur a Probate Fees Tax (PFT) in addition to any potential Capital Gains Tax. The PFT is approximately 1.4% of the gross value of the estate (as disclosed to the registry) on the value of assets over $50,000. With the value of land in the Fraser Valley steadily increasing, the PFT can be a significant and unplanned expense to an estate. For example, a $1,000,000 property will incur PFT totaling $14,000.
If you plan on leaving any assets to loved ones, working with an experienced estate planning group, who understands your unique circumstances, is vital to create a plan that will minimize the PFT and thereby avoid the probate process altogether.
MacCallum Law Group LLP is a Langley-based, second-generation law firm providing over forty-three years of legal experience in the areas of wills, estates, and powers of attorney, corporate and commercial law, tax, succession planning, and land law – matters important to Langley families.
Call us at 604-546-6345 or email firstname.lastname@example.org for experienced counsel on your property transfer solutions.
Key Words: Property Transfer Tax, Real Estate, Estate Planning, Probate, Property Title