On February 18, 2020, the government of B.C. introduced its 2020 provincial budget. Included in the budget is a new exemption from the additional property transfer tax, commonly known as the “foreign buyers’ tax”, which will be available for qualifying Canadian-controlled limited partnerships. Though the specific language of the exemption will not be confirmed until the exemption becomes effective when passed through regulation at a later date, the expectation is that the new exemption will treat Canadian-controlled limited partnerships in a manner consistent with Canadian-controlled corporations, ensuring that the tax will apply consistently to those investors who choose to invest through Canadian-controlled limited partnerships as those who invest through Canadian-controlled corporations.
Under B.C.’s current property tax regime, purchasers of property in B.C. pay a property transfer tax based on the fair market value of the property being transferred. The tax rate is equal to 1% on the first $200,000 of the fair market value of the property, 2% on the portion of value up to and including $2,000,000, and 3% on the portion of the value greater than $2,000,000. For residential properties, a further 5% tax is charged on the portion of the fair market value greater than $3,000,000.
Purchasers are also required to pay an additional property transfer tax equal to 20% of the fair market value of such purchaser’s proportionate share of the property purchased, in the following circumstances:
- the property being purchased is residential property located within certain specified areas of B.C.: the Metro Vancouver Regional District, the Fraser Valley Regional District, and on Vancouver Island, the Capital Regional District capturing Victoria and the surrounding area and the Regional District of Nanaimo; and
- the purchaser is a “foreign entity” (or “taxable trustee”) as defined under the Property Transfer Tax Act (B.C.) (the “PTTA”), meaning, in the case of individuals, a non-Canadian citizen or non-permanent resident of Canada, or in the case of a corporation, a corporation that is not a Canadian-controlled corporation within the meaning of the Income Tax Act (Canada).
As partnerships are not mentioned in the definition of “foreign entity” under the PTTA, and absent any definitive statement from the B.C. government on the subject, it was unclear whether a Canadian-controlled limited partnership with a foreign investor holding a minority limited partner interest would nonetheless be subject to the additional 20% foreign buyers’ tax on the purchase of residential property.
This uncertainty was concerning for developers hoping to attract foreign investment in real estate developments, as limited partnerships are a common and attractive form of investment vehicle, offering potential tax advantages as well as limited liability for investors.
The new exemption for qualifying limited partnerships should eliminate the uncertainty surrounding the tax treatment of partnerships with foreign minority partners, ensuring that new housing developments are treated similarly, regardless of whether the development is being undertaken by a Canadian-controlled corporation or Canadian-controlled limited partnership.
We will provide a further update on this exemption once the regulation bringing it into force is published in the B.C. Gazette.
Maxwell is a partner in the Real Estate Group at Lawson Lundell and advises clients on all aspects of the commercial real estate and development industry, including the acquisition, disposition, financing, rezoning, subdivision ...
Zander is an associate in the Corporate Commercial group. He practices corporate and commercial law and has experience in a variety of transactions, including share and asset acquisitions, corporate reorganizations and other ...
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