Vancouver Real Estate Market is booming and it is no surpirse that Foreign & Overseas Buyers/Investors want to buy and live in Vancouver. It is then importatnt to be mindful of a few facts, including and not limited to
1. Land Title Systems
Property legislation is a provincial responsibility in Canada and therefore each province has its own system for registering interests in real property. British Columbia uses a system whereby title to land is registered in the Land Title Office pursuant to the Land Title Act (British Columbia). Subject only to certain limited exceptions, the registration of title in the Land Title Office creates an “indefeasible title” which is guaranteed by the Province, reducing the need for an extensive search on the validity of title.
2. Title Insurance
The use of title insurance in commercial real estate transactions varies from province to province. In British Columbia, title insurance is not typically used in commercial real estate transactions because the Torrens system provides a significantly greater certainty of title as compared to some other jurisdictions.
3. Property Development and Planning Legislation
In British Columbia, municipalities typically oversee land use regulation, including community development plans, zoning bylaws, subdivision requirements and development permits. Most municipalities have established comprehensive land-use regulation bylaws. The community development plans of municipalities can be of particular interest to real estate investors and developers as the documents serve as a guide for future development.
4. Foreign Ownership of Real Property
In Canada, provinces have the right to restrict the purchase of real estate by non-residents or foreign citizens and each province has different legislation governing foreign ownership. In British Columbia, non-citizens have the same rights as Canadians to acquire, hold, and dispose of real estate in Canada.
The disposition of real estate in Canada (or of shares of a company when the shares value has been derived primarily from real property) by a non-resident triggers withholding rights for the purchaser under the Income Tax Act (Canada). A purchaser acquiring real estate from a non-resident of Canada must withhold a portion of the purchase price of the real property until the vendor provides the purchaser with an adequate tax certificate from the Canada Revenue Agency. This withholding protects Canada’s ability to collect taxes owing by a non-resident when a non-resident disposes of real estate in Canada.
5. Land Transfer Tax
Land transfer taxes are payable in all Canadian provinces when a purchaser acquires an interest in real estate through a registered transfer. Land transfer tax rates vary widely across the provinces. In British Columbia, the Property Transfer Tax is payable at a rate of 1% of the first $200,000 and 2% of the balance of the fair market value of the property being purchased (3% tax over $3,000,000). The Property Transfer Tax only applies to purchases that include a transfer registered at the Land Title Office and does not apply to the transfer of shares of a corporation or the transfer of beneficial ownership. As a result of this tax policy, registered title to commercial real property in British Columbia is often held by a bare trustee or nominee company.
6. Bare Trustees and Nominees
Corporate entities will often structure their business affairs so that a separate single-purpose corporation holds registered title to real estate as a “bare trustee” or “nominee” for the beneficial owner. In British Columbia, this ownership structure is common as it can prevent a future Property Transfer Tax liability for the purchaser. If the beneficial owner sells its beneficial interest in the real property together with its shares in the nominee / bare trustee corporation, the purchaser will acquire legal and beneficial title to the real property without triggering the Property Transfer Tax liability because the transaction does not involve a registered transfer.
Financing the purchase and development of real estate in Canada can be structured in a variety of ways, but the primary security documents involved are essentially the same as other common law jurisdictions. The primary security documents are the mortgage and assignment of rents, and additional security can be provided through general security agreements and other charges on personal property, personal guarantees and conditional assignment of material contracts.
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