The Property Transfer Tax (PTT) is a major factor when transferring property in British Columbia (BC). Although the purchase price may be equal to the fair market value (FMV), there are cases where the FMV needs an independent appraisal to ascertain. This guide describes the situations when an appraisal is necessary, the procedure, and the way to explore this part of the property transactions in BC.
Understanding Property Transfer Tax (PTT)
PTT is a single-time tax applied by the provincial government in the transfer of property. The tax will be charged in accordance with FMV of the property on the date of registration with the Land Title and Survey Authority (LTSA).
The standard PTT rates are:
- 1% on the first $200,000
- 2% on the amount that is above $200,000 but not more than 2,000,000
- 3% on the amount more than 2 million dollars but not more than 3 million dollars
- Another 2% on the amount above 3 million dollars on residential properties
An independent appraisal might be needed in some situations, to determine the FMV where there is transfer between related individuals or where a non-market transaction takes place.
When Is an Independent Appraisal Required?
An independent appraisal is necessary in the following scenarios:
1. Non-Market Transactions
In cases of property transfer involving no money changing hands, i.e. gifts, inheritances, or any transfer between members of the same family, the FMV is to be calculated by using an independent appraisal or the BC Assessment property valuation.
2. Significant Changes in Property Value
In case the value of the property has changed significantly between the sale date and the registration date then an appraisal is required to capture the current FMV.
3. Modifications to the Property
There may also be renovations, re-zoning, or other major changes to the property since the last BC Assessment that would require a new appraisal to get the correct FMV.
4. Non-Arm’s Length Transactions
When dealing with related parties, including family members, where there is a possibility that the sale price does not match the FMV, an independent appraisal will make sure that tax requirements are met.
The Appraisal Process
Step 1: Selecting a Qualified Appraiser
Select a licensed appraiser who has experience in BC real estate. A list of accredited professionals is available at the Appraisal Institute of Canada (AIC).
Step 2: Property Inspection
The appraiser will perform a careful examination of the property, evaluating such aspects as size, condition, location, and improvements and alterations.
Step 3: Market Analysis
To establish the FMV, the appraiser will compare the sales of similar property in the region to provide a bottom line.
Step 4: Report Preparation
A detailed appraisal report will be prepared, outlining the methods and data used to determine the FMV. This report is crucial for PTT purposes and may be required by the LTSA.
Submitting the Appraisal for PTT Calculation
Upon completing the appraisal, send the report together with the copies of the property transfer documents to the LTSA. The PTT will be determined on the appraised FMV.
Potential Challenges and Considerations
Cost of Appraisal: Appraisals are a costly measure and an independent appraisal may cost between 300 dollars and 600 dollars or even more depending on the complexness of the property.
Controversies on FMV: In the event of a conflict between the determination of the valuation by the appraiser and that of the LTSA, additional documentation or a second appraisal might be required.
Time Limitations: The appraisal process may last a couple of days to weeks which may defer the transfer of the property.
To get through the Property Transfer Tax in BC, it is important to understand when an independent appraisal is needed and how to go about getting it. With the help of the suggested steps and adherence to the provincial requirements, the owners of the property will be able to conduct a convenient and effective process of transferring their property. It is always wise to seek the advice of a qualified and competent real estate agent or a legal representative to help in ensuring that all the requirements are met and to answer any special issues concerning your property transaction.