What You Should Consider Before You Transfer Your Property to Family Members

You owe the government property transfer tax (PTT) whenever you buy or acquire title to real estate property. The PPT varies depending on the property’s fair market value. Many people forget about the PTT costs when they buy or receive property, even though PTT can add up quickly. Just like income tax, PPT tax is bracketed as follows:

• On the first $200,000 – 1%

• On any amount between $200,000 and 2,000,000 – 3% 

• On amounts between $2000000 and $3,000,000 – 3% 

• An additional 2% on amounts above $3,000,000

If a person falls under the category of a foreign national, there’s an additional tax. If a Canadian citizen is giving a relative a home worth $5million, the total PTT tax will amount to $108,000. The good news is that under certain circumstances, there are some exemptions to PTT tax. In order to know if a person qualifies for PTT exemption, it is advisable to speak to a real estate lawyer. Below are some of the available PTT exemptions: 

Principal Residence

This exemption might be available if the property in question is the principal residence of either the receiver or the giver. When is home considered to be a principal residence?

• If the giver or the receiver used the property or resided in the property as their home

• If the buildings and other developments on the property cannot accommodate more than three families

• ABC assessment classifies the property as residential

• The property sits on land that is smaller than 0.5 hectares

According to the law, a person can only have a single principal home at a time. People who own several properties should note this. It is also important to note that the individuals involved must be related for the principal residence exemption to apply. The relationship could be:

• A spouse, child, grandparents, or great grandparents

• A child, grandchild, great-grandchildren, and their spouses

• A parent, grandparent, or a great grandparent

Recreational Residence

This exemption also applies to transfers between relatives. A residence qualifies as residential if:

• The giver or receiver used it for recreational basis or purposes

• BC assessments classify the property as residential

• The land on which the property sits is less than 5 hectares

• The fair market value of the property does not exceed $275000

If you own a cabin in an area where real estate prices aren’t unreasonable, this exemption is important.

Marriage Breakdown

There is an exemption while transferring property to the current or former spouse. The law defines a spouse as a person who is:

• Married to another 

• Living with another individual in a marriage-like relationship for two continuous years for this exemption to apply 

The said spouse must be a Canadian citizen or a permanent resident in Canada. If the transfer is to a third party or corporation, the exemption is not applicable.

Family Farm if the Transfer Involves an Individual

A PTT exemption applies to family farm transfers to an eligible person through a will or a trust. Any land used or owned by a family member, individual or family farm corporation qualifies as a family farm. Permanent residents and Canadian citizens are eligible for this exemption.

Family Farm if the Transfer is to or From a Family Farm Corporation

Family farms owned by family farm corporations are transferable to or from other family farm corporations at no PTT tax. In a family farm corporation, none of the shareholders is a corporation. If you need further clarification on PTT tax exemption, contact a real estate lawyer at MB Law.