Property Purchase Tax Act, Bill 60 #115

By Gerry Neely
B.A. LL.B

The Property Purchase Tax Act became law in March of 1987, and amendments to it were made in December, 1987, by Bill 60, mainly to close loopholes or to remove ambiguities in the Act. One loophole was found by developers in the definition of an Agreement for Sale.

The definition excluded as a taxable transaction an agreement under which the purchase price was payable within six months after the time the agreement was signed, but the purchaser was not entitled to possession of the land during that period. A developer would sell to a builder who would register to protect his interest and then,when the house was constructed and the property sold within six months, the builder would quit claim back to the developer. The developer would then sell to the purchaser of the home, who would pay the tax. The six month period has been deleted from the definition. One result of this is that the execution by the vendor of a binding offer to purchase creates a taxable transaction. However, no tax is or can be payable because the obligation to pay tax only arises when an application is made to register a taxable transaction at a Land Title Office.

The definition of "fair market value" has been clarified to establish that fair market value is the amount that would have been paid for the fee simple interest in the land had it been sold at the date of registration of the taxable transaction. If there is an appreciable interval of time between the date a binding contract of sale was entered into, and the date of registration, market forces may have altered the fair market value of the land up or down. Improvements added to the land in that interval of time would increase fair market value. Proof of a change in fair market value that may reduce tax may create additional work for appraisers.

Exemptions were provided where lands were transferred to a trustee, to avoid taxing a transaction where the owners remained the same before and after the registration of a transfer. Filings of a number of unregistered trust agreements to support applications for exemptions by beneficial rather than registered owners, may have cast some doubt on the bona fides of some of the agreements. As a result, the Bill requires that the lands be registered in the name of the trustee where two or more registered owners of adjacent parcels of land transfer the land to the trustee to facilitate a scheme of subdivision. Similarly, transfers of land from a trustee to another person as trustee are only exempt if the transferor's interest as trustee was registered on title, and the transferee's interest as trustee is registered.

As noted above, by the use of a trustee, registered owners of adjacent parcels could participate in a scheme of subdivision without attracting tax. No similar provision applied where two or more owners of the same parcel of land intended to subdivide it. Now, if two or more registered owners of the same parcel of land decide to subdivide it, an exemption is given if the owners remain the same both before and after the subdivision, and if the fair market value of the subdivided land taken by each owner equals the fair market value of each owner's interest prior to the subdivision.

The Act gave a vendor who had sold his property and had taken back a mortgage from the purchaser, an exemption if the purchaser fell into default and the vendor obtained an Order Absolute. The words "pursuant to an Order Absolute of Foreclosure" have been deleted to give the vendor more flexibility in taking back title and avoiding payment of the tax.

One change not in the Bill but which will be found in a revised Property Purchase Tax Return will be the requirement that in a commercial transaction the value of personal property purchased be shown. Clearly the intention is to make this information available to the Social Services Tax Department to increase sales tax revenues. Licensees should make both vendors and purchasers aware of this, since the apportionment of value between real and personal property will become more important in commercial transactions.

One further point concerns the methods by which the Ministry checks the information it is given on the Property Purchase Tax Return. This information is given to the Assessment Authority, which in turn provides the Administrator with the assessed value of the property. Any discrepancies between fair market value and assessed value, after making an unspecified percentage allowance, may lead to an investigation of the return.

Information concerning additional amendments is found in Information Bulletins 4, 5 and 6 of 1987 issued by the Ministry of Finance and Corporate Relations. These have been distributed by BCREA to the local Boards for the information of members. Further information can be obtained by telephoning the Administrator in Victoria at 387-3320, or Faxing Number 387-6218.

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