The 20% Factor: Navigating the Additional Property Transfer Tax

Written By Sebastian Markwick

When acquiring residential real estate in British Columbia, most buyers are familiar with the property transfer tax. However, there is a much more significant, and potentially more expensive, cost that can impact certain residential transactions: the Additional Property Transfer Tax (“APTT”).

Unlike the regular property transfer taxes which are applied at lower, tiered rates, APTT is generally imposed at a rate of 20% on the fair market value of the foreign entity’s proportionate interest in residential property. This cost can impose a substantial capital requirement on purchasers that can alter the financial viability of a residential real estate acquisition.

The applicability of APTT depends on whether the purchaser is considered a “foreign national”, “foreign corporation” or “taxable trustee” under British Columbia legislation. The tax can be triggered by the acquisition of residential property by certain individuals, corporations, partnerships, and even certain types of trusts that do not meet specific Canadian residency or incorporation requirements.

It is important to note several exemptions from APTT:

  • APTT only applies to the purchase of residential real estate in specified areas of British Columbia;

  • APTT may not apply if the purchaser is exempt from property transfer tax;

  • A B.C. Provincial Nominee may not be required to pay APTT; and

  • A purchaser may be exempt if it is acquiring a property on behalf of a Canadian-controlled limited partnership.

Because this tax is calculated based on the total fair market value of the property, the financial implications can be significant. An additional 20% tax on residential acquisitions of real estate in British Columbia can represent a sizable amount of additional liquid capital that must be available at the time of closing.

Identifying whether a transaction will trigger this tax is a critical component of the due diligence process. Because the determination of an entity's status depends on a complex analysis of ownership and residency, it is essential to have the purchasing structure reviewed by legal counsel before entering into a binding purchase agreement. Unforeseen tax liabilities of this magnitude can lead to significant complications in financing and the potential failure of a transaction at the eleventh hour.

Sebastian Markwick