Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
I have dual U.S./Canadian citizenship and I travel back and forth between the two countries for work. I own an apartment in Seattle and now I'm interested in buying in Vancouver. How would the property taxes there affect me?
"Everybody looking to buy in Vancouver is concerned about the recent foreign buyers tax, which is 15% of the value on a given property," said Max Reed, cross-border lawyer with SKL Tax in Vancouver, British Columbia. "As a Canadian citizen, you don’t have to worry about this."
But you may face other taxes.
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British Columbia land transfer tax. As the buyer, you would pay this tiered tax. The rates (in Canadian dollars) are: 1% of the fair market value of the property on the first C$200,000; 2% on the portion of the value between C$200,000 (US$145,862) and C$2 million ($US1.46 million); and 3% on the portion of the value over C$2 million, he said. Therefore, a property worth C$450,000 (US$328,191) would incur a tax of C$7,000 (US$5,105).
Property taxes. These are assessed every year based on the value and location of your property. For example, in the Metro Vancouver area, 2016 property tax rates were around 0.32% of the taxable value, Mr. Reed said.
Property taxes are deductible whether you use the property as a second home or you rent it out, said Kenneth Keung, director, Canadian Tax Advisory, at Moodys Gartner Tax Law in Calgary.
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Vacancy tax. This new tax, which went into effect Jan. 1, applies when residential homes in Vancouver (single-family homes, condominiums, apartments, etc.) are occupied for fewer than 180 days per year. The tax is 1% of the property’s value, Mr. Reed said.
You can avoid this tax by renting out your apartment for at least six months in a year (in 30-day increments), or if you, a family member or friend live there and use it as a primary residence for at least six months of the year, he said.
For U.S. tax purposes, Vancouver’s new vacancy tax might not be deductible, said Azam Rajan, a U.S. tax lawyer with Moodys Gartner Tax Law in Calgary. Land transfer tax generally isn’t deductible against U.S. tax, he added.
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Canadian, local and U.S. taxes. Whether your property purchase makes you a Canadian resident for income tax purposes is an important consideration, Mr. Keung said. For instance, buying a condo in Canada for personal use could potentially mean you’ve become "ordinarily resident," a concept generally interpreted to mean where a person regularly, normally or customarily lives, he said. You then would be subject to worldwide income taxation by Canada. In British Columbia, that would range from 20% to 48%, depending on your income level, he said, although both Canada and the U.S. have a foreign tax credit mechanism that in most cases would prevent double taxation.
"This is a complex area of Canadian and U.S. law, as well as tax treaty interpretation, and professional tax advice should be sought," Mr. Keung recommended.
Federal and provincial income taxes apply to rental income earned from the property, said Ron Dueck, a partner in the Tax and Wealth Management Group of Farris law firm in Vancouver.
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Also, if you spend more than 183 days in a given year in Vancouver, you may be liable for Canadian federal income tax and British Columbia income tax, Mr. Reed said. This is in addition to any U.S. taxes you may owe. "Given these complexities, professional advice is a must," he advised.
Capital gains. Should you remain a nonresident of Canada for tax purposes, you may still owe Canadian income tax on certain types of Canadian income, including capital gain when you finally sell your property, Mr. Keung said.
The current maximum combined federal and British Columbia provincial rate of income tax on capital gains from Vancouver property sold by an individual is 23.85%, Mr. Dueck said.
Goods and services tax. A federal goods and services tax (GST), currently 5%, may apply on the purchase price if the property is newly constructed or has been substantially renovated, Mr. Dueck said.
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You may also have to collect and remit GST on the amount of rent charged to occupants, depending on the type of property being rented, the length of the rental term and the amount charged, he added.
"GST is a very complicated subject. My advice to prospective purchasers is to consider the potential application of GST when purchasing and renting property, and seek advice," Mr. Dueck said.
On a related matter, all buyers in Canada who sell their principal residence don’t have to pay income tax on the gain from sale of the property, Mr. Dueck noted. However, changes have been proposed to eliminate this exemption for non-Canadians buying property after Oct. 2, 2016. "Purchasers should anticipate that these proposed changes will become law," he said.
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