The B.C. government's recent enactment of a 15 per cent tax on residential purchases by foreign nationals has already had considerable effect on the volume of residential purchases and sales in the Lower Mainland. Although the long-term effect on the price of residential real estate has yet to be determined, there is little doubt that the pace of residential transactions immediately slowed. As the buying and selling public learns to adjust to this "new normal", there are still issues which catch people by surprise.
One of these is the effect of this 15 per cent tax on transactions involving First Nations land.
Before looking at this specific issue, let's take a quick look at the tax itself. The legislation introduced a new 15 per cent property transfer tax in addition to the existing 1 per cent, 2 per cent and 3 per cent rates of tax previously in effect. The new tax applies to purchases made by foreign corporations and foreign nationals (persons who are neither Canadian citizens nor permanent residents of Canada). The tax only applies to purchases of residential real property within a specified area, which is currently defined as the Metro Vancouver Regional District, excluding the treaty lands of the Tsawwassen First Nation. The determination of whether or not the property is residential is made based on the classification of the property for property tax purposes.
The Tsawwassen First Nations are planning for residential development on a 250-acre parcel it owns in South Delta, where 1,800 homes are slated to be built. Of these, 50 per cent will be detached houses; 35 per cent will be townhomes and 15 per cent will be condominium apartments, according to a TFN development plan.
The B.C. property transfer tax and the federal sales tax will apply to the housing sales, but not B.C.’s 15 per cent foreign buyer tax. Residents will pay property and school taxes to the TFN.
The fact that the provisions introduced to the Property Transfer Tax Act specifically exempt the treaty lands of the Tsawwassen First Nation from the application of the new 15 per cent tax naturally raises the question as to whether the tax applies to residential property within other First Nations lands. (A trio of First Nations, as an example, have purchased more than 90 acres in Vancouver’s Point Grey; land expected to be developed as residential.)
To answer this question, one first needs to understand how property transfer tax is assessed, and when it is paid. Property transfer tax is a tax payable with respect to taxable transactions, which in the case of residential real estate usually mean the transfer of permanent ownership of the land (generally known as a fee simple transfer) and the transfer of a long-term lease. In either case, however, the legislation is quite clear that the tax only becomes payable when the transfer is submitted for registration at the provincial land title office. Merely signing a transfer of property does not result in tax being payable, nor is tax payable if the transfer is registered in a non-land titles registry.
In respect of the 15% tax, one further criteria has been added for the imposition of the tax, namely that the taxable transaction must be in respect of residential property located within the boundaries of the GVRD, excepting the treaty lands of the Tsawwassen First Nation. The boundaries of GVRD are the boundaries of its members, which consist of 21 municipalities, one electoral area and one Treaty First Nation (i.e. Tsawwassen First Nation, which as noted above is exempt from the 15% tax).
To the extent that the residential real estate is within the reserve land of a First Nation, the 15 per cent tax will not apply. First Nations reserve lands are not within, nor subject to governance by, municipalities. With the exception of the Tsawwassen First Nations, no other First Nation is part of Metro Vancouver, and a lease of residential real estate on First Nations reserve lands would not be subject to the 15 per cent tax.
However, there are other parcels of land which may be controlled by a First Nation, through a First Nation‑owned company. These parcels of land are not on reserve, and may be located within the Metro boundaries. The 15 per cent tax will apply to the sale or lease of these off‑reserve parcels, if the other conditions for the imposition of the tax are met (i.e.: residential property, non‑resident purchaser).
In conclusion, the new 15 per cent tax has no impact on residential transactions occurring on Tsawwassen First Nation treaty lands or any First Nations reserve lands. However, the 15 per cent tax will apply to other residential real estate owned by First Nations‑owned companies in the same manner as other residential properties within Metro Vancouver. This would include the Jericho lands in Vancouver that were purchased by three First Nation bands earlier this year.
Given the significant effect of this tax on the cost of acquiring residential property, it is important when dealing with First Nations residential property to determine whether or not the property is reserve land.
CORRECTION FROM BOUGHTON LAW CORPORATION: In the Nov. 28 edition of Western Investor we advised that the 15 per cent foreign buyer tax in Metro Vancouver does not apply to residential property on First Nations reserve lands. Since the publication of our article, we have learned that the Province of B.C. is of the view that reserve lands of First Nations are within the Greater Vancouver Regional District, even though reserve lands are federal lands and First Nations with reserve lands are not members of the GVRD. Accordingly, the Province's position is that the 15 per cent foreign buyer tax will apply to a transfer of a long term residential lease of on-reserve property within the GVRD if the transfer is registered in the provincial Land Title Office. As not all reserve lands transactions are handled by the provincial Land Title Office, non-resident buyers would be advised to determine which type of reserve lands they are dealing with prior to finalizing a purchase contract, in order to determine whether or not the 15 per cent additional tax is applicable.
- Peter Anderson and Jean Yuen are partners and specialists in real estate, taxation and aboriginal law with Boughton Law Corporation of Vancouver.