The most recent amendments to the Property Transfer Tax Act (British Columbia) (the “Act”), contain anti-avoidance rules, which had not previously been present in that legislation. “Anti-avoidance rules”, mean those provisions of the new legislation that are targeted at arrangement or transactions made specifically and primarily to avoid the payment of tax (i.e. in this case the Property Transfer Tax or “PTT”).
The rule states that additional tax consequences may result in circumstances of single, or multiple property transfer transactions, if the individual(s) or corporation(s) attempt to reduce, avoid or defer paying the required PTT. Additionally, the application of this rule isn’t limited to the higher PTT rate of 15% levied in relation to transfers of real estate to foreign individuals and corporations, but may also apply to the general transfers of property, at the lower revised rates, as follows:
- 1% on the first $200,000,
- 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
- 3% on the portion of the fair market value greater than $2,000,000.
The type of tax consequences that may result where there has been an attempt to reduce, avoid or defer paying the required PTT, is not clearly set out in the amending legislation. Instead, the Act states that the Ministry may determine the tax consequences in a way that is reasonable for the situation, to deny the tax benefit that resulted from not for paying the required PTT. What is “reasonable for the situation” is based on the fair market value of the subject property or the amount of PTT that should have been paid, but shall ultimately be determined by the Minister.
As a General proposition, anyone who participates in tax avoidance of a type referenced in the PTT amending legislation, may face a penalty of the unpaid tax plus interest and a fine of $200,000 for corporations or $100,000 for individuals, and / or up two years in prison.
Moreover, the Ministry can audit and investigate any transaction involving the additional 15% property tax within six (6) years from the date the property is registered at the Land Title Office. It should be noted that, all property transfer transactions are subject to audit and all additional PTT returns will be reviewed and verified for their accuracy.
On the surface, the recent amendments to the Act, are an attempt by government to prevent people from taking additional steps, to avoid the application of the PTT to their transfer of real property; however, there are many unanswered questions, including:
- Does this legislation have any retrospective or retroactive effect? What about residential property that hasn’t been registered in the Land Title Office, but their purchase agreement has already been signed?
- What if you or the corporation become a foreign entity during the 6 year period after the property is transferred in the Land Title Office, would you still have to pay the tax?
- Who would be liable for the penalty? All the parties involved in the sale?
- What about property brought at pre-sale and sold before registering it in the Land Titles Office?
- How does the Ministry plan to investigate or audit suspected individuals and corporations?
It must be noted, the anti-avoidance rules do not apply to transactions that are arranged primarily for a genuine non-tax evasion purpose. However, the Ministry does not define or outline what constitutes this type of transaction.
If you have any questions regarding the Act, the anti-avoidance rules and / or transactions of concern, or if you have questions or want more information, please call Paul Barbeau at (604) 688-4900 ext 11, email me, or connect with me on LinkedIn.