Mortgage Mechanics Episode #2: What is Property Transfer Tax?

One of the most challenging things about writing a blog about Mortgage Lending and general

Mortgage Terms is trying to not only keep it informative but entertaining as well. I’m fairly certain

that most would say that Mortgages are far from entertaining and probably fall somewhere

between mind-­numbing and down right scary.

This is one of the reasons why I decided to create a video series that is, hopefully, both

entertaining and informative. The entertainiment coming from a Broker trying to be a YouTube

sensation! Well maybe not a sensation….

Over the last few months, we have enjoyed many aspects of our new venture ­ our Mortgage

Mechanics Series. Sproing Creative has been amazing at piecing the process together: from

choosing locations, finding that perfect shot and chatting up the locals. Even Vernon Businesses

have been getting in on the action. I would say I had the easy role ­ writing the script and relaying

that information to the camera for all to see. Well ok, that part isn’t so easy but I’m sure we got a

few bloopers from it and maybe one day I would be brave enough to post it.

For this week, we decided to ask locals a very specific question about a Provincial Tax ­ the

Property Land Transfer Tax. The name itself seems to give it away but you’d be surprised as to

how many really do not know what it is. Unless you do your own research, you’ll need to rely on

your Realtor and Mortgage Broker to provide detailed information. The reason why it’s important

to understand this tax and how it is applied is because it could add thousands of dollars to your

final closing costs when you buy your home.

No one like surprises! I know that I don’t and we have tried very hard to ensure that my clients

can rely on the information I provide so they too don’t have surprises. So you may ask, “What is

the Property Transfer Tax (PTT), and how is it calculated? And, am I exempt”? As stated on the

Provincial Government site, PTT is charged “when you purchase or gain an interest in

property that is registered at the Land Title Office, you’re responsible for paying property

transfer tax”. Here is a list of taxable transactions:

∙ transfer of fee simple

∙ right to purchase or agreement for sale

∙ lease or lease modification agreements

∙ life estate

∙ foreclosure

∙ Crown grant

∙ escheat, forfeiture or quit claim

∙ transfer as a result of corporate reorganization

This tax is based on the fair market value of the property at the date of registration, unless you

qualify for an exemption. In order to be exempt, you must be a First Time Home Buyer. And no,

this doesn’t mean just in British Columbia. You must have never owned a home any where in the

world. The First Time Home Buyers’ Program reduces or eliminates the amount of property

transfer tax you pay when you purchase your first home. If you qualify for the program, you may

be eligible for either a full or partial exemption from the tax.

To qualify for a full exemption, at the time the property is registered you must:

∙ be a Canadian citizen or permanent resident

∙ have lived in B.C. for 12 consecutive months immediately before the date you register the

property or filed at least 2 income tax returns as a B.C. resident in the last 6 years

∙ have never received a first time home buyers’ exemption or refund and the property must:

∙ be located in B.C.

∙ only be used as your principal residence

∙ have a fair market value of:

∙ $425,000 or less if registered on or before February 18, 2014, or

∙ $475,000 or less if registered on or after February 19, 2014

∙ be 0.5 hectares (1.24 acres) or smaller

Now, there are certain grey areas or loop holes that will allow us to take advantage of this program

(exemption) in hopes of saving you money. Now, let’s say you are a couple and one spouse has

already owned a home and the other hasn’t. Under a basic Mortgage set up of Joint Tenants (50/50

ownership of the property with right of survivorship), you would only have to pay 50% of the

PTT. Example, a couple is purchasing a $450,000 home. The basic calculation of this tax would

be 1% of the first $200,000 and 2% thereafter. So, a $450,000 home would cost $7,000 which

would be added to your overall legal costs. BUT, because one spouse is PTT exempt, they would

only have to pay 50% of the $7,000 so only adding $3,500 to their costs.

1st Loop Hole:

Instead of registering the mortgage with Joint Tenants, we can actually register the

mortgage as Tenants­in­Common. The difference now lies in how the ownership is divided.

Instead of registering it as 50/50, we can actually provide 99% ownership to the spouse who would

be PTT exempt and only 1% to the spouse who is not. In this example, this couple would

responsible for paying $70 as opposed to $3,500. Now, it is best to seek the advice of your

Lawyer or Notary because this structure may have other implications but overall many choose this

direction to save those funds. My one major recommendation is to ensure that a will has been

created because if one spouse passes those shares DO NOT pass to the surviving spouse.

2nd Loop Hole:

Another creative way of putting the mortgage together when both spouses are

exempt is to potentially ONLY place one spouse on the Mortgage and Title. Now, this is always

dependent upon the Lender and Insurer as to whether they will allow this. If they do, and yes there

are many Lender that will, then we save one spouse for future purchases. This comes in handy

when the 1st home purchased is an entry level home such as a condo, apartment, townhouse etc.

Typically these style of homes have much lower purchase prices. So instead of using 100% of the

exemption on both spouses for a home valued at $200,000 or less, we use it on one and save the

other for their future property upgrade. This means you can actually purchase 2 homes instead of

one under this program. Now, that is some creative financing.

So, as you can see, our role is to not only establish the mortgage, but we should be addressing

these issues to ensure that we are doing everything possible to help save our clients money. Our

philosophy and mission statement is to Open Doors, Build Dreams and the only way to do this is

to do our homework, help educate our clients, and hopefully our Community.

Thank you Andrew McWilliam from Ratio Ratio Coffee
Thank you Britney Powell from Noir Salon
Thank you Chris Schmidt from Art Schmidt Optical
Thank you Chris Bader from Axis Intervention