Are you considering giving a gift of real property to a non-Canadian resident or citizen in your Will? Given our proximity to the United States border and our interconnected world today, this is not an uncommon goal. However, there are a few things to consider when deciding whether to gift real property to a non-Canadian resident or citizen in your Will.
Foreign Buyer Ban
The Prohibition on the Purchase of Residential Property by Non-Canadians Act (Canada) (the “Purchase Prohibition Act”) is federal legislation which prevents non-Canadians from purchasing residential property in most parts of Canada (the only exception being residential property located outside of a census agglomeration or census metropolitan area). To date, this legislation is in effect until January 1, 2027.
However, you can rest assured that the Purchase Prohibition Act does not prevent non-Canadian residents or citizens from receiving a gift of real property under a Will. Therefore, it is still possible to gift real property in a Will to a beneficiary who is not a Canadian citizen or permanent resident.
Be cautious, though, because there is additional legislation that can make it impractical to gift real property to a non-Canadian resident or citizen in your Will.
Additional Property Transfer Tax (also known as the “Foreign Buyers Tax”)
The Property Transfer Tax (“PTT”) is a BC provincial tax that applies to all transfers of real property, unless the transfer falls under one of the exemptions in the Property Transfer Tax Act (British Columbia) (the “PTT Act”). The PTT is required to be paid by the person receiving the real property at the time of registration of the transfer. In addition to the general PTT payable on transfers, the PTT Act imposes an additional PTT on transfers of property to people who are not Canadian citizens or Canadian permanent residents. This additional PTT is often called the “Foreign Buyers Tax”. The Foreign Buyers Tax even applies to transfers that would otherwise be exempt from general PTT.
The percentage of the Foreign Buyers Tax depends on the location of the property but in the Fraser Valley Regional District, for example, the Foreign Buyers Tax is 20% of the fair market value of the subject property.
In the estate planning context, this means that gifts of real property to beneficiaries who are not Canadian citizens or permanent residents will require the payment of the Foreign Buyers Tax upon the transfer. This can result in significant taxes payable at the time of registration of the transfer.
Takeaways
As a result of the Foreign Buyers Tax, when you are doing your estate planning, you will want to consider:
- Whether your estate should be responsible for paying the Foreign Buyers Tax on any transfers of property to your non-Canadian or non-permanent resident beneficiary. Given the large tax liability that the Foreign Buyers Tax can impose, this is only an option for estates that will have a large amount of liquid funds available.
- Whether the property itself must be given to the non-Canadian or non-permanent resident or whether it would make more sense to direct your executor to sell the real property and provide the proceeds to the non-Canadian or non-resident beneficiary. This prevents the beneficiary from receiving the real property itself, however, it saves a tremendous amount of PTT.
Additionally, as always, any time you are planning to make a gift to a non-resident beneficiary, Baker Newby LLP always recommends that you discuss the income tax implications with a qualified accountant.
If you have questions or would like to speak with our team, please contact us to discuss your situation.
