Today we’re going to take a look at all the taxes that you need to be aware of when buying or selling a home in the Okanagan and we’re starting now!
I’m Lisa Salt with RE/MAX Vernon Salt Fowler and Although taxes aren’t the most interesting topic this is a very important topic that you as a buyer or a seller of real estate should know and we’re going to look at all 8 potentially applicable taxes on real estate. Before we do that, please make sure you subscribe to our YouTube channel and like this video as were posting new videos every single week and we would love to have you as a subscriber. On this channel we give you the straight goods on Vernon and the Okanagan, our ultimate four seasons paradise. Whether you’re moving at nine days or 90 days, or you’re just curious about the area we call home be sure to call text or email us and just add salt.
Let’s start with the least popular tax in British Columbia – actually is there ever a popular tax? Not in my books. But anyway, let’s look at the one that we hate the most, and that is the Property Transfer Tax.
1. Property Transfer Tax:
The general British Columbia property transfer tax applies for all taxable transactions. The general property transfer tax rate is:
- 1% of the fair market value up to and including $200,000
- 2% of the fair market value greater than $200,000 and up to and including $2,000,000
- 3% of the fair market value greater than $2,000,000
Further 2% on residential property over $3,000,000
If the property is worth over $3,000,000, a further 2% tax will be applied to the residential property value greater than $3,000,000.
Additional property transfer tax
If you’re a foreign national, foreign corporation or taxable trustee, you must also pay the additional property transfer tax on the fair market value of the residential portion of the property if the property is within a specified area of B.C.
There are a number of ways the GST is applicable on the purchase of real estate in Canada.
- New Construction – if you buy a brand new house, I say a new house but it’s a new anything – condo, mobile, etc. - assume there’s 5% GST on it. There are some exemptions, so if the purchase price is $750,000 or less, however that’s getting harder and harder, plus there are other criteria and partial exemptions – however be aware – new stuff, add 5% onto your budget.
- Newly developed lots – same thing. New condo, new house, new mobile, newly subdivided lot.
- Substantially renovated homes – same thing. Extensive modifications, generally defined as 90% of the building interior that existed before the renovation began or it could also be a major addition to the property as well.
- Farms – working farms earn income. Income producing properties are subject to GST. So if the farm was used in any sort of commercial activity which may mean an equestrian center or it could mean selling a few vegetables at the side of the road just to maintain your farm status. If any revenue has been made from farming activities, check to ensure GST isn’t applicable on a portion of the lands.
- Vacation properties that have been used for short term rentals – again, you’re making money from the property and from short term rentals, GST may very well be applicable on the sale.
- Selling commercial properties or properties purchased in company names and GST was deferred when purchased.
The real answer is: “It’s complicated”. Always seek the advice of your tax accountant in the event of selling or buying any of these types of properties, or any properties other than used residential housing, because this is far beyond the scope of the knowledge of your Realtor.
3. Capital Gains:
At this point, Feb 2022, in Canada, there is currently no capital gains on any appreciation in value ofyour principal residence. Yay. It’s one of the only tax free things you get in this country unless you go to Alberta and skip the sales tax! When you sell a secondary property, however, you pay. Again, at this point in Feb 2022, when you sell a rental property for more than you paid, you likely have a capital gain. You must include this gain on your annual income tax return and are taxed at this point at 50%. So you must pay taxes on 50% of this gain at your marginal tax rate. For example, on a capital gain of $100,000, half of that, or $50,000, would be taxed based on the individual’s tax bracket and the province of residence. So if you combined income tax rate is 30%, you would have to pay capital gains tax on the $50,000 gain at 30% or $15,000.
4. Speculation Tax
At the time of making this video, there is no speculation tax and no vacancy tax here in the North Okanagan as there is in Kelowna and Vancouver and parts of Vancouver Island. This is a huge deal and can save investors and vacation home buyers thousands upon thousands every year by buying property in Vernon or anywhere in the North Okanagan versus places that have either one or both of these taxes. Right now the Speculation Tax in BC is based on the property assessed value and is:
0.5% for Canadian citizens and permanent residents
2.0% for foreign owners, satellite families, and other non citizens
The speculation applies based on ownership as of December 31 each year.
The speculation tax is due on the first business day in July
5. Foreign Buyers Property Transfer Tax
There is the Foreign Buyers Property Transfer Tax of 20% of the Purchase Price – ouch – which must be paid by anyone who is not a Canadian citizen or a Permanent Resident or registered under the Provincial Nominee Program. This applies to any property within the Regional District of the Central Okanagan plus Vancouver, etc. But in the Okanagan it’s only Central Okanagan.
6. Withholding Tax
The other things as a non-resident you need to know is when a non-resident disposes of Canadian real property, the taxpayer must pay a withholding tax of 25% of the sale price of that property or it could be 50% of the gross sales price if that property earned rental income, so you pay this until a clearance certificate is filed with the Government to release your funds.
7. Property Tax
Another tax we all know that applies to our real estate is our property taxes. Property Taxes are due each year on the first working day after July 1st.
Property taxes are one of the City's biggest revenue sources, and help pay for many essential services, such as police, fire fighting, and emergency rescue.
Now in BC, you may qualify for the Home Owner’s Grant: And yes, you will qualify IF you live in BC and the property is your principal residence. If you buy a vacation property, a second home, and live elsewhere – sadly you do not qualify. Sorry. If you don’t live in BC and it’s not your principal residence – you pay full pop for your property tax bill on an annual basis.
8. Income Tax
If you rent out a property and your revenue is greater than your expenses for that property, you pay income tax on the revenue.
Any net income your rental property generates is taxable as ordinary income on your tax return. For example, if your net rental income is $10,000 for the year and you fall into the 30% tax bracket, you would owe $3,000 in taxes. That's the short version of how rental income tax works. Now you can deduct all your expenses first – so say you bring in $20,000 a year, from that $20,000 you can deduct or subtract your mortgage interest, property taxes, utilities costs, house insurance, maintenance, advertising, property management fees, etc. so if all that cost $10,000, then you would pay tax on that $10,000 at your tax rate which again, if that was 30%, then $3000.
And that’s all I can think of! I think that’s probably about enough. At least here in the Okanagan we don’t have a vacancy tax like they do in Vancouver so I suppose we should be grateful for that.
To find out more about these taxes, have a look at the links below and also be sure to contact us directly to discuss other costs when purchasing a home in Vernon or anywhere in the Okanagan.