MORTGAGES VANCOUVER  
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PROPERTY TRANSFER TAX – WHAT IS IT AND WHEN DOES IT APPLY?

Many purchasers gasp when I tell them what their property transfer tax bill is going to be on the purchase of their new home. The amount is often staggering, and all for the pleasure of owning property in our fine province of British Columbia. In fact, people have been so surprised by it, that I have decided to write up an article on how to calculate what your tax will be, if it will apply, and if there is any way around it.

Note, this article is not intended to be legal advice, nor should you rely solely upon it when calculating your transfer tax on a purchase (especially when transferring amongst family members). However, it will provide the guidelines and a structure to guide your decision making process. Please consult with your solicitor or tax professional if you require a to-the-penny calculation or judgment as to your eligibility for tax avoidance.

HOW MUCH IS THE PROPERTY TRANSFER TAX?

The guidelines for calculating transfer tax is as follows:

1% of the first $200,000 of purchase price (before GST, if applicable)
2% of the balance of purchase price

So, for a $450,000 home purchase, the tax would be:
$2,000 1% of first $200,000
$5,000 2% of the Balance
$7,000 TOTAL TRANSFER TAX

WHEN DOES PROPERTY TRANSFER TAX APPLY?

Property transfer tax is applicable on all property transfers within BC. The only way to avoid it is to be a first time home buyer or be transferring to and from a parent (siblings do not apply). In order to qualify for the First Time Homebuyer Exemption, you must meet the following criteria:

1. The purchaser must be a Canadian Citizen, Landed Immigrant, or Permanent Resident

2. The purchaser must have resided within BC for 1 year prior to the purchase

3. The purchaser must not have owned an interest in a principal residence at any time, anywhere in the world

4. Purchase must be up to, but not more, than $425,000 (amounts up to $450,000 face a sliding scale – reduced amount – but still pay some of the tax)

5. The purchaser must occupy the property within 92 days of title registration (you always pay the tax on rentals)

So, if you meet these criteria, you can avoid the transfer tax.

CAN THIS BE ADDED TO MY MORTGAGE?

The short answer is “No,” but let me explain. The minimum amount you can put down is 5%, and if you are only putting 5% down, and do not qualify for the exemption, then no, you cannot add it to your mortgage. Why? Because this would be the same as putting less than 5% down.

For example, if you are buying a $300,000 condo and are not a first time home buyer, and are putting 5% down, this would be $15,000 of down payment. The tax would be $4,000. You cannot “add it to the mortgage” because you are already putting only 5% down. The $4,000 tax would have to be paid out of pocket. O,therwise you would be putting only $11,000 down. So you would need to have $19,000 available at the closing date. This would be the 5% down payment ($15,000) plus the tax ($4,000).

However, if you are putting 10% down ($30,000) then yes, you can “add it to the mortgage” but this is the same as keeping the $4,000 out of the down payment and only putting $26,000 down (with $4,000 kept aside for the tax). In other words, you need cash or equity. You cannot do a 0% down mortgage, and also finance the tax (unless you meet the criteria above).

Where this is tricky is if you are putting 20% down to avoid any CMHC fees. Sure, you can put less than 20% down if you want to “add it to the mortgage,” but then you will trigger the payment of CMHC fees. So again, you will have to come up with it out of pocket.

Bottom line: this is a cost that is not addable to the mortgage unless you reduce the down payment, and you cannot reduce it below 5% (and still get best discounted rates). If you are putting 20% down, and need to finance the tax, be aware that this will also result in staggering CMHC fees.

If this doesn’t many any sense, or if you want clarification of your unique financial situation, please give me a call at 604-657-6775 for a personal and direct response.

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