Using Ratcliff & Company LLP For your B.C. Recreational Real Estate Transaction
Ratcliff & Company LLP are specialists in recreational and resort real estate transactions in British Columbia. Our lawyers and support staff have many years experience with real estate transactions in B.C. resorts including Whistler, Panorama, Kicking Horse, Kimberley, Big White and Sun Peaks. We offer a complete service at competitive rates.
We offer legal expertise to purchasers in all aspects of the transaction including:
Goods and Services Tax (GST)
Restrictive Covenants
Fractional ownership
Purchases with foreign corporations, Limited Liability companies, and Trusts
We are accustomed to acting for non-resident vendors and we are able to assist with:
Income Tax Clearance Certificates
Conversion of foreign currencies (our firm has trust accounts with all of the major Canadian Banks and the three largest Credit Unions, including a US dollar account)
Our firms' location is ideal for expeditious completion of your transaction:
If you are travelling through Vancouver we are approximately 45 minutes from the airport, just off the Upper Levels Highway in North Vancouver
Since we are in the Greater Vancouver area, we have overnight courier service to all major centres in Canada and the US (documents leaving our office by 3:00 in the afternoon are usually at their North American destination by 10:00 the next morning)
Most major Banks have their mortgage processing centres in the Vancouver region and we are able to pick up instructions from the centres the same day or have them delivered to the local branch at no charge the following day
The six largest financial institutions in Canada have branches near our office which enables us to pick up mortgage instructions daily and deposit sale proceeds daily
We would be pleased to act for you in your real estate transaction.
For further info or to contact our real estate lawyer, Chuck Piercey,
or his legal assistant, Susan Pearson.
Send your e-mail to:
Buying Recreational Real Estate
In British Columbia
The following briefly details principal topics of concern for purchasers of recreational real estate in British Columbia. Depending on your particular circumstances, some of these topics may not apply.
1. PRE-CLOSING CONCERNS
1.1 Taking Title in the Name of a Company
If you are considering taking title to the property in the name of a company, you should obtain accounting advice.
There may be disadvantages to purchasing in the name of a company as follows:
A corporation may pay tax on income earned from the property at significantly higher rates than an individual (depending on the individual’s marginal tax rate);
Losses from the property cannot be written off against your personal income tax;
A corporation may pay higher capital gains tax than an individual;
Should you incorporate a company in BC specifically for the purpose of acquiring real estate in BC:
you will have additional legal costs of incorporating the company (approximately $1,300) plus additional annual legal costs of approximately $275 associated with filing annual reports and maintaining a registered and records office;
If the company is incorporated outside of BC:
a mortgage lender may require that the company be registered in BC (at a cost of approximately $1,000);
personal guarantees of the principals of the company are usually required by the mortgage lender;
an opinion letter from a solicitor in the incorporating jurisdiction is required if the purchase is being financed with a BC mortgage;
depending on when the company was incorporated, a Certificate of Incorporation or a Certificate of Good Standing (or Status) is required from the incorporating jurisdiction;
It is necessary to maintain the company in the incorporating jurisdiction (BC or otherwise) for as long as the property is owned.
Advantages of having the property held by a company include the following:
In the event of the death of the principals of the company there would be no change of ownership of the property in the BC Land Title system. If the shares are held outside of BC there would not be any probate fees payable in BC in relation to the change of ownership of the shares;
If the property is the only asset of the company, it may be possible to sell the shares in the company instead of transferring title to the real estate. The purchaser then avoids paying Property Transfer Tax and GST. However, purchasers may be reluctant to buy shares as they risk inheriting liabilities of the company including any monies owing to Canada Customs and Revenue Agency (“CCRA”).
1.2 Taking Title with a Limited Liability Corporation (LLC)
The Land Title Office treats LLCs differently from other corporations and in order to register a property in the name of an LLC without extra provincially registering the LLC, you must also provide the Land Title Office with a copy of the constating document that specifically empowers the LLC to hold real estate. If the constating document does not specifically empower the LLC to hold real estate it may be necessary to extra-provincially register the company at a cost of approximately $1,000. Annual legal costs of approximately $275 are charged to maintain the extra-provincially registered LLC with the BC Registrar of Companies.
1.3 Taking Title in the Name of a Trust
Individuals with family trusts have the option of purchasing their property in the name of their trust. This avoids probate or succession duties upon the death of the owners of the property (probate fees in BC are calculated at approximately $14 for every $1,000 in property value).
The Land Title Office requires the entire original trust document to be filed. The document is then a document of public record. These documents usually list in detail the assets and beneficiaries of the trust.
If a mortgage is to be obtained the mortgagee may be reluctant to lend to the trust. There will be additional legal costs in conjunction with providing any necessary legal opinions to the mortgagee as to whether the trust has the legal capacity to enter into a mortgage.
Trusts are typically taxed at a higher rate than individuals or companies so it is recommended that purchasers obtain an accountant’s advice before deciding to buy in the name of a trust.
An alternative to using a trust is to have the property held in joint tenancy by at least two individuals and the property will pass to the surviving joint tenant(s) without probate fees applying.
1.4 Mortgages
Mortgages in BC can differ from those available in the United States in several significant ways, including the following:
Many mortgages are for a fixed term, typically between six months and five years. At the end of the fixed term the interest rate is renegotiated.
During the fixed term there are limited rights to repayment, typically ranging from 10% to 20% of the outstanding balance in any year.
In the event that you wish to prepay more than the permitted amount, or in the event of a sale of the property, a penalty is usually charged and typically this will be the greater of three months interest or the interest rate differential.
1.5 Insurance
Purchasers are required to arrange insurance on single-family residences. The strata corporation insures strata-titled properties. Strata lot purchasers should consider obtaining liability and contents insurance.
1.6 Strata Maintenance Fees and Levies
Purchasers of strata titled homes (condominiums, townhomes, duplexes), or of fractional interests in these homes, are responsible for paying monthly maintenance fees. The strata corporation is also entitled to levy special assessments for extraordinary expenses should there not be sufficient money in the contingency reserve fund. Prior to committing to your purchase, the amount of these monthly fees should be confirmed and strata meeting minutes should be reviewed carefully to determine whether the strata corporation anticipates any extraordinary expenditures. Purchasers should also determine from the strata plan what rights they have to use any common areas such as parking stalls and lockers.
1.7 Rental Covenant
Properties covered by a Rental Covenant must be available for rent through a bona fide property manager when not being utilized for personal use. The Rental Covenant may restrict the owner’s use of the property. Details of the rental management and any use restrictions are included in the developer’s Disclosure Statement issued to original purchasers.
2. POST-CLOSING CONCERNS
2.1 Property Taxes
Property taxes and municipal utilities charges (water, sewer, etc.) are due on or about July 1st each year. Confirm with your property manager, if any, whether they pay them on your behalf. The tax notice will be mailed to you in June at your address as it is shown on title to the property. If the taxes are not paid by the due date (usually not later than July 2nd) there will be a late payment penalty. A discount is available (home owner grant) if the property is your principal residence. The Municipality will provide you the discount form with the tax notice.
Important: If you purchase the property in the spring, the Municipality may not receive notice from the Land Title Office that you are the new owner in time, and it may send the tax notice to the previous owner. The Municipality will still charge you the penalty if taxes are not paid on time so it is important to contact the Municipality in June if you do not receive the tax notice.
2.2 Strata Maintenance Fees
As these fees are required to be paid promptly once a month, you may wish to arrange with your property manager to have these directly debited from your bank account.
2.3 Withholding Tax on Rental Income for Non-Residents
Non-residents are required to pay 25% of the gross rental income from the property to CCRA. You may obtain exemption from such withholding tax if you complete an NR6 return setting out that the projected income is less than the anticipated expenses associated with the property. Most property managers will assist in the completion of the NR6 return. Upon having filed an NR6 return, you are obliged to file an annual tax return with respect to the property. CCRA will only allow expenses to be claimed if the returns are filed and will disallow any expenses incurred more than two years prior to the time of filing. It is therefore important that the returns be filed each year to avoid expenses being disallowed.
2.4 Furniture and Canada Customs
Should you intend to furnish your property with personal effects from your home outside of Canada, you should contact Canada Customs to determine their requirements to avoid paying duty on the furnishings. Ordinarily you are permitted to transport one shipment of used personal effects to a recreational residence without duty. In order to do so you will have to provide proof at the border of your recent purchase of the property. The purchase document required is a copy of the registered Form A Transfer.
2.5 Furniture and CCRA
If you are purchasing furnishings for your property and those furnishings may be subsequently sold with the property it is important that you retain receipts for the furnishings. This would include documentation from Canada Customs for items brought across the border or invoices from suppliers indicating that the furnishings were delivered to the property. Failure to retain such receipts may result in CCRA disallowing the cost, resulting in a larger capital gain on the disposition of the property.
3. EXPENSES AT CLOSING
3.1 Legal Fees and Disbursements
These are closing expenses paid to us for preparing, arranging for execution of, and registering transaction documents. Disbursements are charged for our out-of-pocket expenses such as agents’ fees, document registration charges, property and tax information searches, courier costs, long-distance calls, PST and GST. The exact amount of these disbursements will vary depending on the transaction. Total legal expenses on a purchase transaction will typically range between $700 and $2,500. We can provide you a quote as to fees and disbursements at the time you enter into a Contract of Purchase and Sale.
3.2 Property Transfer Tax (PTT)
This Provincial tax applies (with some exceptions) to all transfers of real estate and it is payable by the purchaser on the purchase completion date. The tax is 1% on the first $200,000.00 of the purchase price and 2% on the balance.
3.3 Social Service Tax (PST)
Provincial sales tax of 7% may apply to furniture purchased with the real estate. If furniture is separately listed and valued in the Contract of Purchase and Sale, the vendor may ask that PST be paid to the vendor for remittance to the Provincial Government.
3.4 Goods and Services Tax (GST)
GST is designed to be paid by the end user of the goods or services that are being purchased. In the case of recreational real estate, the end user is either the purchaser who is buying the property for personal use, or the renter who rents the property from the purchaser on a nightly or short term basis.
A purchaser who buys a newly developed vacant lot or a newly constructed home or strata unit for the purposes of personal use is required to pay GST equal to 7% of the purchase price. A purchaser who buys the new property with the intention of renting it out to nightly or short term renters may be able to defer paying GST by obtaining a GST number prior to completing the purchase. The determining factors are the type of property and the type of purchaser:
Partnerships (e.g. a husband and wife as joint owners), companies and trusts, can usually defer GST on purchases of new property;
Single individuals purchasing new property that is fractionally titled (e.g. quarter interest), or that is a hotel type unit that restricts the purchaser’s personal use, can usually defer GST;
Single individuals purchasing new property without restrictions on the purchaser’s personal use of the property will usually be required to pay GST.
A single purchaser who has paid GST can apply to CCRA for a refund at the end of the first year of ownership if the property was available for rental as outlined below.
Once registered for GST, the purchaser is entitled to claim credits and obtain refunds for GST that has been paid on property expenses such as legal fees, strata management fees, property management fees, etc.
At the end of the first year of ownership, the purchaser must file a tax return with CCRA. If the property has been available for rent at least 90% of the time (i.e., personal use did not exceed 36 days), the GST will continue to be deferred.
If the purchaser’s personal use of the property exceeds 50% in the first year (i.e. it was available for rent less than 182 days in the year), GST will be payable on its then current market value. If personal use was between 10% and 50% the purchaser will be required to pay GST in proportion to that personal use.
Even if GST is deferred at the time of the purchase and is not payable after the first year because of its 90% availability for rent, it may be payable at a later date if there is a change in use. For instance, if the property is used as a rental property for the first three years of ownership and in the fourth year the owner decides that he will stop renting the property, CCRA will consider this to be a change in use which attracts GST. GST would be payable at the end of the fourth year on the then current market value of the property.
If GST is deferred on the original purchase and is never subsequently paid by the Owner, upon a resale of the property the second owner must be registered for GST if the second owner is to defer paying GST. If GST is paid on the original purchase and there is no subsequent change of use, a subsequent purchase of the property will not attract GST.
More detailed information on GST is available on the CCRA web site at www.ccra-adrc.gc.ca.
Ratcliff & Company LLP can facilitate registration for GST for our purchaser clients.
3.5 Closing Adjustments
These are adjustments to the purchase price of prorated annual or monthly property expenses incurred by the vendor before closing or to be incurred by the purchaser after closing. These adjustments typically include property tax, municipal utilities and strata fees (if applicable). Depending on the type of property and the time of year and month of the purchase, these adjustments can debit or credit the purchaser several hundred to several thousand dollars.
4. THE CLOSING PROCESS
4.1 Summary
The following is a step by step summary of what can be expected after entering into a Contract of Purchase and Sale:
Soon after you or your real estate agent have instructed us to act on your behalf and have informed us that you have removed any subjects in your Contract, we will send you some general information on the transaction and a Purchaser Information Form to complete and send back to us.
Our receipt of the Contract and a completed Purchaser Information Form will allow us to open a file for you. We will then order title, tax and, if applicable, strata information for the property and use this information to complete transaction documents.
If the purchase is being financed with a BC mortgage to be secured by the purchased property, we must receive mortgage instructions from your bank (if we are preparing the mortgage) or mortgage documents from the bank’s lawyers, before we can complete transaction documents.
If you are unable to attend at our offices during the week prior to the completion date of the purchase, we will deliver the transaction documents to you with detailed instructions on how to sign them and return them to us together with wiring instructions for the funds required from you to complete the purchase.
Delays we experience in obtaining mortgage instructions or other property information may result in a rush delivery of these documents to you requiring your immediate attention to having them signed and returned to us.
Once we have your signed documents returned to us, we can register the transaction in our Land Title Office on the completion date.
We will inform you when the registration is completed, and as soon as possible after registration we will send to you a letter confirming the closing with copies of the transaction documents.
Approximately two months after closing, the Land Title Office will send to us, and we will in turn send to you, a State of Title Certificate confirming that the title to your property is registered in your name.
4.2 Document Execution and Delivery
We do not use escrow agents in British Columbia. The transaction is closed using lawyers and notaries. The buyer and the seller do not physically meet each other to exchange closing documents and funds. The documents will be prepared by us and arrangements will be made for you to sign them and to provide closing funds.
If it is not convenient for you to attend at our office, we can make arrangements as follows:
If you are buying with cash only (i.e. you are not getting a mortgage) we can forward the documents to you by either email or fax. You will need to sign hard copies of the documents and fax them back to our office. You will also have to make arrangements to transfer closing funds to our office. This can be done by wiring the funds directly to us or by sending the funds by courier. If you choose to courier the funds it must be by way of a certified cheque or bank draft. If you choose to send the funds in foreign currency, they will be converted into Canadian dollars upon arrival at our firm=s bank and the exchange rate will be the exchange rate in effect at our bank on the date the funds are deposited. Our firm cannot accept responsibility for the exchange rate that you receive. You should ensure that more than enough monies are forwarded in order that we will have sufficient funds to complete the transaction. If we have monies in excess of the amount required to complete the transaction we will refund any difference to you.
If you are purchasing with a mortgage, it will be necessary for us to arrange to deliver the documents to you by courier. The Form B Mortgage will need to be signed in the presence of a Notary Public (see below with respect to the proper execution of the document by the Notary). It will then be necessary for you to return the documents by courier. Please note that couriers do not guarantee delivery by 10:00 am the following day on international deliveries to Canada. These deliveries may not be made before 5:00 p.m. the following day at the earliest.
If you are selling, we can courier the documents to you. If we are under extreme time pressure we may be able to fax them to you however, as the quality of the reproduction of the documents is critical, we prefer not to. In some instances we may be able to email the documents to you but it depends on whether the buyer's lawyer has been able to provide us with electronic versions of the documents and whether the parties use compatible software.
Once you have received the documents it will be necessary for you to attend before a Notary Public to arrange for the execution of the Form A Transfer in black ink pen. The Notary must sign opposite your signature on the Form A Transfer and must provide us with their full legal name, mailing address and occupation including the words "Notary Public".
Please note that if you live outside of Canada, a Barrister/Solicitor, Attorney or Lawyer is not an acceptable witness on the document and you must have it witnessed either by a Notary Public or a Canadian Consulate officer.
If you live in California, you will no doubt experience great difficulty in getting a Notary to sign on the same page as you sign. The Notary will want to attach an additional page and complete the notarization of the document on that additional page. This is not acceptable to our Land Title Office. We find that if you request the Notary to complete the document as "a jurat", they will then sign the document properly opposite your signature. If they wish to add the words "sworn before me" that is acceptable to our Land Title office.
4.3 Transfer of Funds
We are unable to give you a final figure as to the funds required to complete until we have completed our searches for information such as property taxes, maintenance fees and the net amount of mortgage proceeds.
A rough estimate of the amount required to complete can be calculated as follows:
Debits
Purchase Price
Property Transfer Tax (1% on the first $200,000 of the Purchase Price, 2% on the balance)
Mortgage Brokerage Fees
Legal Fees and Disbursements
Property Taxes (a debit to you after July 1)
Maintenance Fees for the balance of days remaining in the month
Credits
Amount of the deposit paid by you to the realty office (do not calculate interest on your deposit as any interest earned will be remitted to you after the closing by the Real Estate office directly).
Amount of your Mortgage
Property Taxes (a credit to you before July 1)
The difference between the debit and credit columns should give you an approximate amount required to complete the transaction.
If we have not provided you with a figure as to legal fees and disbursements, please feel free to contact us for this information.
Please note that if you are wiring the funds the wire can take up to a week if it is coming from outside of Canada. If you are obtaining a mortgage on a property in the State of Washington, state law requires that the mortgage company hold your funds for three days from the registration of the mortgage. Please note that we will require funds one business day prior to the completion date under your contract.
4.4 Delays
Closing dates are extremely important in British Columbia real estate transactions. The closing date is a contractual obligation for the purchaser to meet and failure to meet it may result in the vendor choosing to void the contract, keep the deposit, and sue for further damages. A vendor may provide an extension of a closing date but they are not obligated to do so. It is not uncommon for a vendor who wishes to continue with the transaction to demand interest or additional charges for extensions of the completion date. EVERY EFFORT MUST BE MADE BY THE PURCHASER TO MEET THE CLOSING DATE.
We would be pleased to represent you in the purchase of your recreational property. Please direct any questions you may have to us by phone or email.
For further info or to contact our real estate lawyer, Chuck Piercey,
or his legal assistant, Susan Pearson.
For further info or to contact our real estate lawyer, Chuck Piercey,
or his legal assistant, Susan Pearson.
Send your e-mail to:
Purchaser Checklist For Recreational Real Estate
To ensure a smooth transition to ownership, here is a list of some of the issues that you will want to address following completion of a recreational home purchase. If the property is not professionally managed, any references below to the property manager will not apply and responsibility for the matter will fall to the owner.
Have you opened a Canadian Bank account and arranged automatic withdrawals of required payments (see below)? If rentals of the property are handled by a property manager, provide details of the account to your property manager for revenue deposits.
Have you discussed with the property manager your responsibilities with respect to your unit and what bills they will be paying on your behalf (see below)?
BC Hydro - Quite often it is necessary for you to apply for hydro service in your name even if the billing will be forwarded to a property manager. Contact BC Hydro at 1-800-224-9376.
Cable Television – To apply for service, contact the local cable service provider.
Telephone – To apply for service, contact Telus at 1-888-811-2323.
Strata Corporation Maintenance Fees – If your property is a strata unit, these fees are payable monthly and arrangements can usually be made with your property manager to pay these on your behalf, or you can arrange for an automatic debit from your account with the Strata Corporation’s management company.
Property Taxes - Property taxes and municipal utilities (water, sewer, etc.) are due on or about July 1st each year. Confirm with your property manager whether they pay them on your behalf. The tax notice will be mailed to you in June at your address as it is shown on title to the property. If the taxes are not paid by the due date (usually not later than July 2nd) there will be an automatic late payment penalty. A discount is available (home owner grant) if the property is your principal residence. The Municipality will provide you the discount form with the tax notice.
Important: If you purchase the property in the spring, the Municipality may not receive notice from the Land Title Office that you are the new owner in time, and it may send the tax notice to the previous owner. The Municipality will still charge you the penalty if taxes are not paid on time so it is important to contact the Municipality in June if you do not receive the tax notice.
Mortgage Payments - Most lenders will set up automatic debit arrangements for monthly payments on the mortgage and many will, if you wish, collect and pay your property taxes.
Non Resident Withholding Tax - You can minimize the non-resident withholding tax by completing an NR6 return and submitting it to Canada Customs and Revenue Agency (CCRA). It will include an undertaking that you will annually file a tax return related to the property. Discuss with your property manager whether they will assist you with a completion of an NR6 return. If they will not, contact an accountant.
Tax Returns - Have you made an arrangement with an accountant to assist you with the filing of your annual Canadian income tax returns with respect to rental income? The tax return for the year ending December 31 is due by April 30. Note that expenses related to the property cannot be claimed after more than two years have elapsed, so it is important to file annually.
GST Returns - Confirm with your property manager that they are collecting and remitting the GST on your behalf. It will be necessary for you to at least annually file a GST return with CCRA verifying the returns made by your property manager. In this return you may claim GST input tax credits such as GST paid on legal fees or property manager fees.
Insurance - Confirm with the property manager and the Strata Corporation exactly what insurance coverage is in place and what coverage you should be carrying. Typically you should carry liability insurance and in some instances it will be necessary for you to insure the furnishings.
Booking Personal Use – If your use of the property is restricted, have you reviewed the terms of any rental agreements to determine the notice requirements for booking personal use of the unit and have you diarized all appropriate dates?
Canada Customs – If you intend to furnish your property with personal effects from your home outside Canada, you should contact Canada Customs to determine their requirements to avoid paying duty on the furnishings. Ordinarily you are permitted to transport one shipment of used personal effects to a recreational residence without duty. In order to do so you will have to provide proof at the border of your recent purchase of the real estate. The purchase document required is the registered Form A Transfer.
For further info or to contact our real estate lawyer, Chuck Piercey,
or his legal assistant, Susan Pearson.
Send your e-mail to:
Ratcliff & Company LLP - Suite 500, East Tower, 221 West Esplanade, North Vancouver, BC, V7M 3J3
