- Arora Zbar LLP Newsletter
- Posts
- BEWARE: 1% Owner & additional PTT on foreign buyers.
BEWARE: 1% Owner & additional PTT on foreign buyers.
Dont end up paying 40% PTT + a $100,000 fine!
Eli Zbar
June 12, 2024
“But in this world nothing can be said to be certain, except death and taxes.”
In approximately 2016, the British Columbia government introduced anti-avoidance provisions in the Property Transfer Tax Act. Anti-avoidance provisions have long been a part of the federal Income Tax Act.
The essence of anti-avoidance provisions are the penalties which may in circumstances of single, or multiple transactions, where the individual(s) or corporation(s) attempt to reduce, avoid or defer paying the required PTT.
The PTT department regularly audits transactions under the anti-avoidance provisions. Transactions are subject to audit for six years from the date the transfer is registered with the Land Title Office.
A common “red flag” for an audit is a foreign buyer registered at a low or minimal legal ownership percentage, such as 1%, only for the purpose of reducing the PTT payable.
How can this knowledge help your clients?
Other than avoiding fines and penalties….one time a client removed subjects with financing based on the non-Canadian spouse holding 1% title and only paying the additional PTT on 1% of the value.
As there was no other reason for the 99/1% split other than saving tax, I cautioned them of the risk of an audit.
They had to find ~$50,000 MORE in a huge rush to cover the additional PTT imposed on the foreign buyer at 50% ownership rather than 1%!
If a transaction is audited, expect the PTT department to demand documents and information speaking to the financial circumstances (such as bank statements evidencing the ownership of the funds used to purchase the property), relationship between the various parties, and relations with the lender (such as guarantee agreements) showing the reason for 1% ownership. For instance, one would expect a 1% owner to pay 1% of the down payment, 1% of the mortgage etc.
Tax avoidance, penalties, and offences
Penalties for evading or avoiding the tax or making false certifications may include:
Double the PTT (including the 20% additional PTT on foreign buyers, bringing it to 40% PTT!)
PTT plus interest
A fine of $200,000 for corporations
$100,000 for individuals and/or up to two years in prison
The penalties apply to anyone who participates in tax avoidance, even if they are not aware of the provisions.
Additional penalties may apply for people who don’t comply with the PTT Department’s requests for info during an audit.
Therefore, if one splits the ownership on title to reduce PTT, there is a risk of an audit and a penalty. When in doubt, ask a lawyer!
💡Practical Tips
🤔Did You Know?
We offer real estate agents and mortgage brokers complimentary short phone consultations. Message us on WhatsApp, or book a free consult with one of our lawyers.
A reminder that Arora Zbar LLP has 4 lawyers offering services in real estate transactions, construction disputes, corporate law, commercial litigation, tenancy/strata disputes, and estate planning.
We offer services in English, Punjabi, and Farsi.
We are super transparent about pricing, check out our app at www.pricemyconveyance.com - it calculates property transfer tax, too!
Contrary to what people think, a lawyer is not more expensive than a notary. Remember that all lawyers are notaries, but notaries are not lawyers. In my experience, most notaries refer clients to a lawyer as soon as there’s a problem with a deal. Why not start with a lawyer?
Sincerely,
Eli Zbar
Lawyer
Are you following us on Instagram yet?
Check out some previous newsletters:
👉Delays in Funding, Delays to Closing Day?