B.C. Government Announces Foreign Buyers' Tax Exemption for Certain Limited Partnerships
The provincial government recently amended the Property Transfer Tax Regulation, B.C. Reg. 74/88, to clarify how additional property transfer tax relating to foreign buyers applies when a Canadian-controlled limited partnership acquires the property (the “Amendment”). The Amendment came into force on June 1, 2020.
B.C.’s Property Transfer Tax Regime
Under B.C.’s current property transfer tax regime, purchasers pay a property transfer tax (the “Tax”) of 1–3% based on the fair market value of the property being transferred: Property Transfer Tax Act, R.S.B.C. 1996, c. 378, s. 3 (the “Act”). The Act provides for a number of exemptions from the Tax payment. Note that the Tax is distinct from annual property taxes.
The Act imposes an additional tax equal to 20% of the fair market value of the purchaser’s share of the property where the property is residential property located in certain regions of the Province and the purchaser is a “foreign entity” or “taxable trustee” (the “Foreign Buyers’ Tax”). A foreign entity means a foreign national (an individual who is not a Canadian citizen or permanent resident of Canada), or a foreign corporation (a corporation not incorporated in Canada; or a private corporation directly or indirectly controlled by a foreign national or by a corporation not incorporated in Canada). A taxable trustee means a trustee that is a foreign entity or a beneficiary of the trust that is a foreign entity and holds a beneficial interest in the residential property being transferred. There are also certain exemptions from payment of the Foreign Buyers’ Tax: Act, ss. 17.1–19.
Prior to the Amendment, it was unclear how the Foreign Buyers’ Tax applied to partnerships; no exemption addressed it. The Amendment provides that a transferee who is a general partner in a limited partnership is exempt from the obligation to pay the Foreign Buyers’ Tax if:
- the transferee acquires the land on behalf of the limited partnership;
- each general partner is a Canadian citizen, a permanent resident of Canada, or a corporation other than a foreign corporation;
- the combined interest in the limited partnership of all foreign limited partners amounts to less than half of the entitlement of all partners to share in the profits of the limited partnership; and
- each general partner and limited partner is a resident of Canada for income tax purposes for the taxation year to which the transaction occurs.
The Amendment is a positive development for real estate investors in B.C. and synchronizes the application of the Foreign Buyers’ Tax between companies and partnerships.