Buying Property in British Columbia
When it comes to buying real estate in British Columbia it is important to receive advice from a real estate agent, lawyer and accountant who specialize in the area in which you want to live.
If you plan to stay in Canada for 6 months or less each year, the government considers you a non-resident, which means that you can still open a bank account and buy property, but if you plan to live in Canada for more than 6 months per year, you must apply for immigrant status.
Buying Property in Canada: The process
As a Canadian resident, financing is typically available at 75% of the purchase price for a primary residence over a 25-year term. For a non-resident, the ratio is generally 65% mortgage and 35% as a down payment. Qualifying for the mortgage financing is probably the same as in other countries - interviews via phone, fax, e-mail to gather personal information which includes assets/liabilities, employment and/or income information. Each borrower's application will be considered on a case-by-case basis. I am very happy to advise you on suitable mortgage brokers.
The mortgage approval may take approximately 24-48 hours after application and documentation has been submitted to the lender. The documentation generally required is income verification, tax returns, credit bureau or bank's report (letter from borrower's own bank stating that all accounts are in good standing to date), down payment confirmation via bank statements, copy of 2 pieces of ID and real estate appraisal. Foreign banks cannot register mortgages in Canada, so any mortgage would have to be raised via a Canadian mortgage broker. (Please see 'Transferring Funds' for more information).
The borrower will require the services of a Canadian lawyer or notary public to prepare the mortgage documents and registration at the Land Titles office. Documents can be couriered outside Canada for signing - this will need to be arranged with the lawyer and lender well in advance of the completion date.
Making an Offer to Purchase
You will need to give the vendor(seller) an Agreement of Purchase and Sale (also called an Offer to Purchase) which I, as your Realtor will prepare. This Agreement states the legal names of both buyers and sellers, the civic address of the property, the price that is being offered for the home, any items in and around the property that are being included in the sale - itemized under 'chattels included', the amount of the deposit, the closing day (the date that you take possession of the home - in Canada this is usually 30 - 60 days after the Agreement of Purchase and Sale has been signed), request for a land survey to be carried out (if applicable), the date the offer expires, other conditions (such as a home inspection, property appraisal, lender approval of mortgage financing).
Once the offer is made and accepted, a deposit is payable. Once the buyer has signed the document, it becomes legally binding. If the buyer withdraws from the offer, the deposit may be lost and the buyer could be sued.
Once the Agreement has been signed by the buyer, it is presented to the seller who is at liberty to make changes to the price, completion date and chattels. The changes are initialled by the seller and returned to the buyer for review. Once both sides are in agreement, the resulting Agreement of Purchase and Sale will state the purchase price and the deposit. The deposit is placed in a trust account within 24 hours of acceptance and is credited towards the purchase price once the offer has been accepted by both the seller and the buyer and the transaction is complete.
Selling Property in Canada
When a non-resident sells Canadian real estate, he/she is required to pay the appropriate amount of taxes on any capital gain. The normal Canadian tax rates will be applied to 50% of the gain. However, a non-resident is required to pay an estimate of the tax before the sale, an amount equal to 25% of the gain. This amount is to be retained by the seller's lawyer until such time as a clearance certificate is received from the Canada Revenue Agency (CRA) in connection with the sale of the property. Upon payment, the CRA will issue a clearance certificate to the seller, but not until there has been a contract of purchase and sale with all subjects (conditions) removed. The wait for the certificate is usually 6-8 weeks. If the certificate is not obtained, the purchaser is required to withhold from the sale proceeds, a percentage of the selling price (usually 25-50%).
On or before the closing date, the mortgage money is transferred to the seller's lawyer and then to the seller and the title is transferred to the buyer's name.
The non-resident seller should file a Canadian income tax return for the year in which the sale occurs and should expect to receive a refund of a portion of the taxes paid. The taxation of Canadian real estate depends on whether the use of the property is for a principal residence, an active business or as a rental property. If it is used as a rental property, a 25% non-resident tax must be paid on the gross rent a tenant pays. However, if you use a professional property manager, the manager will, by law, withhold 25% of the gross rental revenue at source to be remitted to the Canada Revenue Agency. Then on or before March 31 of the following year, the property manager issues an NR4 form and you then have the right to file a Canadian tax return. The tax return is due before June 30 and enables you to claim expenses against that income and potentially request a refund.
Additional Costs and Fees when Buying and Selling Property
The following represents many of the additional costs and fees incorporated when buying property. Your realtor will be able to let you know which are applicable in your Province.
Non-residents of Canada pay tax on income received from sources in Canada. The type of tax paid, and the requirement to file income tax returns, depends on the type of income received.
Canada has tax treaties with many countries, including the United States and the UK. A tax treaty is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries.
Property Transfer (or Purchase) Tax / Land Transfer Fees are generally 1% of the first $200,000 of the value and 2% of the remainder. Since the 2005 Provincial Budget, Property Transfer Tax (PTT) is now exempt for individuals buying their first home as long as they meet certain criteria, namely that they are a Canadian citizen or Permanent Resident and have never owned a home anywhere in the world; that they have lived in the province for at least one year prior to purchase; that they have filed two Canadian tax returns within the last six years; and that they must occupy the property as their principal residence for the first year of ownership.
If the property is vacant land, the house must be constructed within one year of closing and the buyer must live in the house for the balance of the year.
There are other criteria needed as well to qualify for the PTT exemption, so it is best to consult a lawyer or notary.
Clearance Certificate The typical fees associated with preparing and filing a clearance certificate, paid by the seller, range from $300-$1000, depending on the complexity of the transaction.
Capital Gains Tax is not applicable on your principal residence.
Goods and Services Tax (GST) of 5% is only payable on newly constructed homes and is often included in the quoted sales price. New home buyers of residences costing $350,000 or less can apply for a partial rebate of the 5% GST applicable on the purchase price as long as the home is going to be the purchaser's primary place of residence. The rebate is up to 36% of the GST to a maximum rebate of $6,300.
For new homes priced between $350,000 and $450,000 before GST, the GST rebate reduces proportionately. New homes priced $450,000 before GST or higher do not receive a rebate. There is no GST on resale housing unless the home has been substantially renovated, and then the tax is applied as if it were a new home.
Please refer to your accountant or Lawyer, who is familiar with real estate revenue taxation for GST questions.
Provincial Sales Tax (PST) in BC is 7% and again, is normally included in the quoted sale price.
Property Tax is an annual fee levied within local communities, which means there are many different rates within each province. The difference between Property Tax and Property Transfer Tax is that PTT is a one-time provincial tax which comes into effect upon transfer of property and Property Tax is paid annually to the local taxation authorities. It is determined by applying the value of the property as assessed by the provincial assessment authority to the current tax rates as stated by the local tax authority. The amount can differ each year but generally Property Tax falls between 0.5-2.5% of the home's market value.
Grants and Rebates
Home Owner Grant
The Home Owner Grant is one of three property tax assistance programs offered by British Columia. The program began in 1957 to help homeowners reduce the amount of taxes they pay on their home.
The purpose of the Home Owner Grant is to help reduce the amount of residential property tax British Columbians pay. The home owner grant applies to taxes paid by British Columbians to their municipality or to the Surveyor of Taxes for rural areas. The grant is available to Canadian citizens or holder of permanent residency status in Canada, who live in British Columbia, and he or she must occupy the home as his/her principal residence.
For 2013, the home owner grant will be reduced on higher-valued properties by $5 for each $1,000 of assessed value over $1,295,000. The basic grant is eliminated on homes assessed at $1,409,000 or more, and the additional grant is eliminated on homes of $1,464,000 or more.
The grant must be applied for each year.
Home Buyers' Plan: Registered Retirement Savings for down payments
Canada Revenue Agency's Home Buyers' Plan lets qualifying home buyers use up to $25,000 of their Registered Retirement Savings Plan (RRSP) to buy a home. Couples can use up to $50,000. The home must be a principal residence, the home buyers must not have owned a home within the past five years and the loan must be repaid with 15 years.
CMHC Mortgage Loan Insurance Premium Refund
Provides home buyers with CMHC mortgage insurance, a 10% premium refund and possible extended amortization without surcharge when buyers purchase an energy efficient home or make energy savings renovations.
First-Time Home Buyers' Tax Credit
This federal non-refundable income tax credit for qualifying buyers of detached, attached, apartment condominiums, mobile homes or shares in a cooperative housing corporation. It's calculated by multiplying the lowest personal income tax rate for the year by $5,000.
Realtor's Fees are paid by the vendor(seller) and are generally around 7% on the first $100,000 of the sale price and 3% on the remainder. GST of 5% is also applied to the Realtor's commission and is payable by the vendor.
Appraisal Fee Your lender may require a property appraisal at your expense. The cost is between $150-$250.
Survey Fee Your lender will require an up-to-date survey. If the Seller does not have one, you will have to pay to have one done. This can be approximately $150-$350.
Lawyer's Fees Lawyers review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. The fee will be approximately $500-$800.
Home Inspection Fee is usually around $450. This is the equivalent of a survey in the UK and other countries and is carried out at the purchaser's request.
Property Insurance which covers the replacement value of the structure of your home and its contents.
Service Charges can be in the region of $35-$50 to hook up new services and utilities.
Condominium (Strata) Fees are charged monthly and cover building insurance and maintenance. The building’s property manager will provide you with the fee.