First Time Home Buyers PTT Threshold Increased!

Effective February 19th, 2014, the government has increased the PTT first time home buyer full exemption threshold to $475,000!

For complete exemption requirements see: http://www.sbr.gov.bc.ca/documents_library/forms/0269Guide.pdf

By Kelowna Real Estate Lawyer Peter Borszcz

Cutting taxes

Distressed Sales: Options for Sellers of Distressed Property

Unfortunately, and often due to a series of unfortunate events, some owners find themselves unable to afford their home and in some cases being forced to sell at a loss. There are a number of different ways for this to occur:

A. Short Sale with Seller Bringing in Cash to Complete

This type of transaction occurs when the proceeds of sale are insufficient to pay the mortgage, commission and fees associated with the property and the Seller is able to access other financial resources to complete the transaction by depositing the shortfall in trust with their lawyer to complete the transaction.

Of all the options for a distressed sale, this options makes the best of a bad situation, there is no foreclosure proceeding and no judgements registered against title or the seller.

B. Short Sale with the Bank Accepting Shortfall of Net Proceeds

Where the Seller is unable to make up the difference on Closing between the net sale proceeds and the mortgage payout and the Seller is in default of their obligations to the Lender, most Lenders will grant of discharge of the mortgage registered on title in exchange for net sale proceeds (less agreed adjustments) in exchange for a consent to personal judgement against the Seller and a reasonable payment plan for the balance.

The option avoids a formal foreclosure proceeding (and it is the Seller that accepts a Buyers offer “subject to being able to clear title”), but Seller agrees to a debt judgement against them and they will continue to have to pay the balance remaining after the sale to the Lender. Often when a mortgage default has proceed to this stage, there is a certificate of pending litigation on title.

C. Court Ordered Sale

As the Bank has proceeded with the foreclosure, at this stage the ability to sell the property  is now subject to Court Approval.  A Buyer’s offer will be subject to Court Approval and other buyers may appear in Court to bid on the property. The Seller is not involved in this transaction and registration in the Land Title Office takes place by filing of a certified copy of the court order granting the property to the Buyer (on payment of the purchase price) [Important: ensure Buyers names are correct on the Court Order!].

D. Lender Owned Property

If the property has proceeded through the entire foreclosure without an offer, the Lender may seek an “Order Absolute” and the Lender will assume ownership of the Property. In this case the Lender is the Seller (as they are the Seller on title) and the transaction proceeds very similarly to a normal real estate transaction (except that Lenders are often very reluctant to provide Property Disclosure Statements).

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

First Time Home Buyers: New Property Transfer Tax Declarations

When the province announced the new First Time New Home Buyers Rebate associated with the HST rebates, they tightened the definition of “First Time Home Buyer” (see my post here for more information on the rebates). This tighter definition indicates that the government is looking more closely at (ie; auditing) who is a “first time” home buyer. This higher degree of oversight is also supported by recent changes to the Property Transfer Tax Form which required a Buyer to DECLARE the following:

  1. Have you owned an interest in a principal residence (where you lived) anywhere in the world?
  2. Have you ever recieved a British Columbia (BC) first time home buyer’s exemption or refund?
  3. On the date of registration, are you a Canadian citizen or a permanent resident as defined in the Immigration and Refugeee Protection Act (Canada)?
  4. Have you continuously resided in BC for at least one year immediately prior to the date of registration or filed income tax returns as a BC resident during the six year before the date of registration?
See the new form here:

If the Buyer makes a FALSE DECLARATION, the Minister of Finance may charge a penalty equal to DOUBLE THE TAX.

Also, the Buyer MUST qualify as a first time home buyer (above) and the they must purchase a “Qualifying Property”:

  1. Fair Market Value is less than $475,000 (for full exemption)
  2. Land is less than 0.5 hectares in size
  3. Property used as Principal Residence
And, the Buyer MUST actually occupy the home:
  1. Must move into the home within 92 days of the date of registration (unless vacant land, then must move in within 1 year)
  2. Must continually occupy as principal residence for one year from the date of registration.
The form changes and the recent legislative attention to this issue likely will result in greater audit attention to this area. First Time Home Buyers should ensure they meet all the criteria: as a Buyer, with a Qualifying Property, and they plan to Occupy the home for the first year.

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

First Time Home Buyers: Special Programs

I must admit, I love watching the HGTV show “Property Virgins“, and seeing the excitement of first time home buyers fulfil their dreams of home ownership is one of the best things about my job.

In British Columbia, real estate prices (compared with much of Canada) are high relative to average income, which increases barriers to first time home owners. In the Okanagan, local professionals like to call this the “sunshine tax” (although “four season paradise tax” would be more appropriate). Thankfully there are some very helpful programs that First Time Home Buyers can use to assist them with their first home purchase.

A. Property Transfer Tax Exemption for First Time Home Buyers

This program exempts First Time Home Buyers from paying BC Property Transfer Tax.

To Qualify for the PTT Exemption a First Time Home Buyer must:

  1. Be a Canadian Citizen or Permanent Resident
  2. Have lived in BC for 12 consecutive months OR filed income tax returns for at least 2 of the last 6 years in BC
  3. Never have owed an interest in a principal residence anywhere in the world; and
  4. Never have previously received a First Time Home Buyers Exemption
If you qualify, on homes valued up to $475,000, a First Time Home Buyer will be exempt from paying Property Transfer Tax (a savings of $7,500 in PTT). The tax exemption diminishes on higher priced homes and is not available on any homes priced over $500,000.
You apply for the exemption at the time of conveyance, and often your lawyer will complete the PTT Return and Exemption application as part of the closing documentation.  There are severe penalties for a false declaration.

B. RRSP First Time Home Buyers Plan

This program allows First Time Home Buyers to “loan themselves” previously claimed RRSP contributions tax free to assist in the purchase of a home.

To Qualify for the RRSP First Time Home Buyers Plan:

  1. You must have entered into a binding agreement to build or buy a home
  2. You intend to occupy your home as a principal residence and be a resident of Canada
  3. You are a first time home buyer
  4. You must not have a “repayable Home Buyers Plan” balance on your tax return
This program will allow you to withdraw up to $25,000 from your RRSP to assist in your home purchase. This is withdrawn at your financial institution immediately prior to closing and you complete form T1036.

C. First Time Buyers New Home Bonus

This is a time limited rebate (introduced with the enhanced HST rebates) for First Time Home Buyers buying new homes (until March 31, 2013 only), to qualify:

  1. You must be eligible for an HST rebate on a new home purchased after April 1, 2012 and Completion must occur before Mar 31, 2013 (ie; transition tax does not apply)
  2. You (and the if a couple, both persons) must be a First Time Home Buyers and BC Residents
  3. The home must be the Buyers Primary Residence
  4. Your Family Income must be less than $150,000 for full rebate (note : the rebate phases out to $0 for income over $200,000)

After closing you will apply to the BC Government which will grant a rebate of 5% of the purchase price of the home (if under 200k) or $10,000 (whichever is greater). The rebate will be a cheque mailed directly out to claimants after the application has been approved.

The best place for First Time Home Buyers to start their new home search is by getting a clear idea of the process, check out my BUYERS PAGE.

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

Property Transfer Tax: First Time Home Buyers

First time home buyers get an exemptions from paying the property transfer tax and this “tax break” can save FTHB thousands of dollars. However, First Time Home Buyers need to carefully ensure that they qualify for this tax savings. Persons claiming a FTHB credit are regularly audited by the PTT Office.

The Criteria to Qualify are as follows;

Purchaser must:
a)  be a Canadian Citizen, or a permanent resident as determined by Immigration Canada,
b) have lived in British Columbia for 12 consecutive months immediately before the date
you register the property, or you have filed 2 income tax returns as a British Columbia
resident during the 6 years before the date you register the property,
c) never owned an interest in land anywhere in the world at anytime,
and
d) you have never received a first time home buyers’ exemption or refund.

The Property you purchase must also qualify as follows:
a) the price must be less than $425,000
b) the land must be less than 0.5 hectares (1.24 acres), and
c)  the property will only be used as your principal residence.

Importantly, if you sell the property or acquire a new principal residence within 12 months of purchase, you will lose the exemption and the Province will demand for the tax to be paid.

More information here:
http://www.sbr.gov.bc.ca/documents_library/brochures/firsttimehomebuyer.pdf

Getting Ready to Sell – Cleaning Up Your Land Title

As we move into another Buyer’s market cycle, it is important to remember the lessons Seller learnt the “last time around”. Realtors often recommend to Sellers to “declutter” and “stage” the interior of their homes, however, it is important to remember that, at its foundation Buyers are purchasing “PROPERTY RIGHTS” and therefore its important to ensure, as a Seller, that your Land Title is also “squeaky clean”.

A couple of things to do:

1. Remove any “extra” encumbrances on title – usually Buyers are expecting to see typical first mortgages on title, however where Uncle Buck lent you some money and registered a non-institutional second mortgage, or, where you have a small claims judgment registered against you, these “extra” encumbrances on title, including 2nd mortgages, judgments, builders liens, or certificates of pending litigation, can raise big RED FLAGS for Buyers, if they can be removed prior to closing (or even listing), it can make for a much smoother process.

2. Ensure you (as Seller) and only you are on title as the registered owner – did you inherit the property in a Will? Or, did your parents go on title as this was your first home? Or, have you gone through a legal separation? If you have the full legal rights to sell the home, ensure that you (and only you) are on title. In most cases the transfer to a surviving joint tenant, or to from parent to child, or a transfer in the course of a legal separation is easy (and most of the time a Property Transfer Tax exemption is available and no tax is payable!) Best to take care of these items prior to listing so there is no question when you sign the Contract that you are the person with the ability to sell the property.

3. Return the Duplicate Certificate of Title – A Duplicate Certificate of Title may be removed from the Land Title Office by some banks as security for loans (with or without registration of the mortgage). In the event that the Duplicate Certificate of Title is outstanding, no further transfer or mortgage may be registered on title. Therefore if this has been removed from the Land Title Office, it will bar any sale or mortgage of the property until it is returned and refiled with the Land Title Office.

Property Transfer Tax – First Time Home Buyer Exemption

This exemption is more limited than most first time home buyers realize, its not enough that this is your first home in British Columbia, to qualify you must meet all of the following criteria:

1) Be a Canadian Citizen or Permanent Resident.
2) Must have resided in BC for the last 12 months, and at least 2 of the last 6 tax years.
3) Must never held title to property any where in the world
4) Must not have previously applied for the exemption.

Usually, #2 causes the most problems. For example, if you are a college student in Ontario and you are moving out to British Columbia to start your first job. Upon buying your first home you would not qualify for the FTHB exemption as you have not resided in British Columbia for a sufficient time.

Property Transfer Tax – Related Induvidual Exemption

One of the limited exemptions to paying property transfer tax occurs where the Seller is related to the Buyer. However, for this exemption to apply, the Seller and Buyer must be “vertically related” and the property must be a principal residence.

So, consider the situation where husband is on title and wishes to add his wife to title to their family home for estate planning purposes. Normally, this transfer would be taxed by Property Transfer Tax, however, the exemption applies and no tax is applicable.

If however, an uncle wishes to sell his property to his neice, since they are not vertically related the exemption does not apply, and Property Transfer Tax is payable on a direct transfer from the uncle to the niece.

Similarly, if the property is a rental property, no exemption is available as it is not a principal residence.

Property Transfer Tax

For most out of province buyers, finding out about Property Transfer Tax often comes as an unpleasant shock. Property Transfer Tax is charged on every transfer of freehold title in the Province of British Columbia as is calculated as 1% of the first $200k and 2% of the remainder of the Purchase Price

This means a $300,000 home buyer will pay $4,000.00 in Property Transfer Tax on closing. Similarly, a $600,000 home buyer will pay $10,000.00 in Property Transfer Tax on closing. This tax hit is made even more difficult as banks will not finance this payment.

The tax can be avoided if you qualify for a limited set of exemptions, the two most common are:
a) the first time home buyer exemption; and,
b) the related induvidual exemption.
I will discuss this exemptions in more detail in later posts.