Lawson Lundell's Real Estate Law Blog

BC Government Enacts New Exemption and Refunds For Foreign Entity Tax

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On March 15, 2017, the BC Government issued Order In Council 152/17 (the “OIC”), which creates a retroactive exemption from the 15 percent Foreign Entity Tax (the “Tax“) for foreign nationals applying for permanent residency under BC’s Provincial Nominee Program, and provides refunds for certain purchasers who have previously paid or are required to pay the Tax and later become Canadian citizens or permanent residents. The OIC enacts these changes by way of amendments to the Property Transfer Tax Regulation. For additional information on the Tax, see our previous posts here and here.

Inclusion in BC’s Provincial Nominee Program (BC PNP) places a foreign national into a “fast track” stream with respect to its permanent residency application. The Program is divided into two categories: entrepreneurial nominees (i.e. foreign nationals with high net-worth and business or management experience) and skilled nominees (i.e. foreign nationals filling in-demand occupations). Current foreign national provincial nominees who purchased a principal residence on or after August 2, 2016 (the effective date of the Tax), and paid the Tax, have 18 months following the date of their purchase to claim a refund for the additional tax. The new exemption is available for provincial nominees who are foreign nationals purchasing principal residences in the Greater Vancouver Regional District. The exemption applies to the purchase of an improved residential dwelling, provided the provincial nominee intends to inhabit the dwelling as their principal residence. The exemption can only be used by provincial nominees once, and is not available for companies or taxable trustees.

The number of nominations under the BC PNP is based on annual nomination allocations from the Canadian federal government, and processing times at the BC Government. For 2017, the allocation is 6,000. In 2016, it was 5,800. Given that many nominees relocate to markets affected by the Foreign Entity Tax, the OIC may provide relief for a significant number of home buyers.

Starting August 2, 2017, a refund will be available for Canadian citizens or permanent residents who have previously paid the Tax and have obtained citizenship or permanent residency status in the period following the effective date of the Tax. Going forward, refunds will also be available for foreign national purchasers who become Canadian citizens or permanent residents within one year after purchasing their property, and is not available for companies or taxable trustees. In order to be eligible for the refund, the Tax must have been paid in respect of a residential property purchase which, on that date of registration of the applicable conveyance, included a permanently affixed improvement that was intended to be a dwelling; and the purchaser must continuously occupy that dwelling as his or her principal residence for at least a year beginning on a date that is at least 92 days after the acquisition date. As with the provincial nominee exemption above, each purchaser is only eligible to receive a refund of the Tax once, and must claim it within 18 months of purchasing the property.

Anecdotally, it appears that certain foreign buyers already in the process of applying for permanent residency have entered the market by way of purchasing presale condos and townhouses, with the plan that they would obtain permanent residency by the time of completion. This availability of a refund will provide another option for relief from the Foreign Entity Tax for foreign buyers who anticipate becoming permanent residents.