Commercial Litigation and Dispute Resolution Blog

Owning real property in British Columbia while a US resident has become increasingly complex and challenging. There are various taxes that apply to the purchase, ownership and subsequent transfer on death of such real property, as well as annual filing requirements. This article will provide an overview of such taxes in the estate planning context, as well as some items for US residents who wish to buy property in British Columbia or who own property in British Columbia to consider.

It is advisable for US residents who own real property in British Columbia to have a separate British Columbia Will prepared to deal with that asset, and any other assets that may be located in British Columbia. Relying on a US Will to manage British Columbia real estate can result in lengthy delays, impede the ability to sell or dispose of the real estate in a time effective manner and create additional costs. A British Columbia Will should be prepared in coordination with a US Will to ensure that both documents are complimentary and one does not inadvertently revoke the other.

When a non-resident dies owning Canadian real property a deemed disposition occurs. This means such person is deemed to have disposed of the Canadian real property and tax on any unrealized gain would accrue to that person’s estate.^[1] Furthermore, depending on the specifics of the disposition and subsequent asset transfer (whether sold to a third party or transferred to a beneficiary under a Will), additional filings, certificates and income taxes payable may be required.

There are a variety of other taxes and filings that may result because of a owner’s death or may continue to apply upon an owner’s death.

Probate Fees

Probate fees are a fee levied by the Province against the gross value of a person’s British Columbia assets. It is calculated at roughly 1.4% of the gross value of such assets. This fee becomes payable by a person’s estate when the personal representative (the person named in the Will to administer the estate) applies to a British Columbia court for a grant of probate. A grant of probate is required in British Columbia to deal with any real property forming part of an estate. It is a more complicated process to obtain a grant of probate when we are dealing with submitting a US Will instead of a British Columbia Will.

Property Transfer Tax

Property transfer tax is a tax that applies to a transfer of property. The word “transfer” is defined quite broadly in the Property Transfer Tax Act (British Columbia) to include, for example, a transfer to a beneficiary under a Will. Property transfer tax is levied at a rate of approximately 2% of the value of the property for properties $2,000,000 or less, and increases thereafter. However, if real property in British Columbia is transferred to a foreign national^[2], then additional property transfer tax at 20% of the value of the property applies. This can be an unexpected consequence for many non-resident recipients of British Columbia real estate on a person’s death if proper planning is not undertaken.

Speculation and Vacancy Tax

Speculation and vacancy tax is an annual tax levied based on how owners in certain taxable regions in British Columbia use their properties. The Province of British Columbia recently expanded the list of taxable regions where speculation and vacancy tax applies.^[3] Assuming no exemption applies, then an estate or any beneficiary who receives real property would pay an annual tax in an amount up to 2% of the assessed value of the property and would need to file an annual declaration with respect to same. This highest rate of tax would apply if the estate or the recipient beneficiary were non-residents, which for an individual means, not Canadian citizens or permanent residents.

Underused Housing Tax

Underused housing tax is an annual tax at 1.0% of the assessed value of real property that is levied against vacant or underused properties. The tax generally applies to foreign nationals, which the Underused Housing Tax Act (Canada) defines as persons that are not Canadian citizens or permanent residents of Canada. A return must be filed annually by April 30, 2024 and payment for the applicable taxes made as of such deadline. In the event that real property remains with the estate for a lengthy administration period or is transferred to a foreign national, then underused housing tax and ancillary filings may be required.

As outlined above, property ownership in British Columbia can be complex and costly for US residents, but this can be further complicated and aggravated if proper estate planning is not undertaken when real property is purchased or during one’s lifetime. Estate planning should ideally be considered at the time that real property is acquired so that ownership can be structured effectively to minimize taxes payable in the future and facilitate estate planning goals.

For more inquiries about this topic, purchasing real estate in Canada or assistance with cross-border estate plans please contact Samantha Ferguson or Lawson Lundell’s Estate Planning and Litigation Group.

^{[1] Tax is payable in accordance with subsection 2(3) of the Income Tax Act (Canada).}

^{[2] A foreign national is a person who is not a Canadian citizen or a permanent resident of Canada.}

^{[3]  https://www2.gov.bc.ca/gov/content/taxes/speculation-vacancy-tax/how-tax-works/taxable-areas}