Purchasing Property in Whistler
Purchasing in Whistler
In addition to general purchase considerations, there are additional issues you should consider when purchasing property in Whistler.
Tourism Whistler – these are fees that are assessed and invoiced annually that must be paid to Tourism Whistler by March 31st each year.
- Calculated based on the combined Common and Commercial Unit values of each Member’s property.
- The Residential Member Use Declaration Form is required by March 31st each year, and may be used in order to potentially reduce Tourism Whistler fees.
- Automatic withdrawal of fees can be arranged online via www.whistler.com/assessments
Restrictions on use
Phase One Covenants
If the property is subject to a Phase One covenant then it must be available for rental through a bonafide property manager when not being utilized for personal use.
Phase Two Covenants
If the property is subject to a Phase Two covenant, personal use of the property is restricted to 28 days in the summer and 28 days in the winter. The covenant defines how these periods of personal use may be booked and states whether additional days may be booked by booking 15-30 days in advance, subject to availability. When not in personal use, the property must be available for rental through a property manager.
In order to make purchase of recreational property more affordable, some developers are now offering freehold ownership of quarter interests in property to the public. Under this form of strata title ownership the owner has registered title to a one-quarter interest in the property (usually a condominium or town house).
Structuring the Property Purchase
Purchases may be structured in several ways. Each method has a different effect on taxation of the purchaser, so accounting advice is helpful in determining which method is best for the purchaser.
Disadvantages of purchasing through a corporation:
- Depending on the marginal tax rate of an individual, the tax rate on income derived from property may be higher for a corporation.
- The capital gains tax rate of a corporation may be higher than that of an individual.
- If the corporation is not a British Columbia Corporation, a mortgage lender may require that the company be registered in British Columbia.
- If a corporation is not required to register as an extra-provincial corporation in British Columbia before completing a transaction, a Certificate of Good Standing will be required from the incorporating jurisdiction, along with an opinion letter from a solicitor in the incorporating jurisdiction, in order to get mortgage financing in British Columbia.
- A corporation which purchases property must be maintained as long as the property is owned by the corporation.
- Even though the property will be owned by a company, the mortgage lender will generally require personal guarantees from the principals of the corporation.
- If there are losses from the property, those losses cannot offset personal income tax.
Advantages of purchasing through a corporation:
- If the principals of the company die, there is no change of ownership of the property, which means that no probate fees will be incurred on the property, only on the change in ownership of the shares. If the shares of the company are held outside of British Columbia they will be exempt from the probate fees imposed in conjunction with a change of ownership of the shares.
- If the company’s only asset is the property, sale of the property may be effected through sale of the shares of the company, avoiding payment of the Property Transfer Tax and the Goods and Services Tax.
Limited Liability Corporations
In order to register a property in the name of a limited liability corporation (LLC) without extra-provincial registration of the LLC, the Land Title office will need a copy of the constating documents of the company showing that the LLC is empowered to hold real estate. If the LLC is not empowered to hold real estate it may be possible to change the LLC constating documents to allow it to do so.
Buying in the Name of a Trust
- Buying in the name of a trust (frequently a family trust) avoids payment of probate or succession fees upon the death of the owner of the property.
- If the purchase is going to be made in the name of the trust, the Land Title Office will require that the original trust document be filed with the Land Title Office. This makes the trust document available to the public, giving out considerable information about the beneficiaries and assets of the trust.
- Instead of buying through a trust to avoid probate and succession fees, the purchaser may want to consider holding the property in joint tenancy. This means that more than one person’s name is on the title, and when one title-holder dies, the title passes automatically to the other joint tenant.
- If mortgage financing is necessary, purchasing in the name of a trust may become more complex. The mortgage institution may not be willing to lend to a trust, and a solicitor’s opinion letter as to the trust’s ability to enter into mortgage agreements may be necessary.
Opened Canadian bank account and arranged automatic withdrawal of required payments.
Applied to BC Hydro to have hydro bill issued in your name (even if the bill will be handled by the property manager). Call 1-800-224-9376 for BC Hydro.
Strata Corporation Maintenance Fees – arranged for payment of monthly fees with property manager or for automatic debit from bank account.
- Tourism Whistler Fees – contacted Tourism Whistler for fee rate and arranged for payment either with property manager or automatic debit from bank account – visit www.whistler.com/assessments
- Property Taxes- determined whether vendor has already paid yearly amount or whether an amount will be owing in July and obtained grant form if applicable via: https://www2.gov.bc.ca/assets/gov/taxes/property-taxes/forms/fin-78-application-home-owner-grant.pdf
Mortgage payments – set up automatic debit of payments with lender.
- Non-Resident Withholding Tax – contacted property manager or accountant for completion of Form NR6 to reduce withholding tax.
- Tax returns – arranged for filing of annual Canadian tax returns with respect to the property – returns for the year ending December 31 are due April 30 of the next year.
- Insurance – confirm what insurance coverage exists and what is necessary (i.e. does is the property under strata title liability and will contents insurance will be necessary? Property insurance will generally be obtained by the Strata Corporation.)
Booking Personal Use – reviewed terms of rental agreements to determine notice requirements for booking and booked desired dates.
Canada Customs – contacted Canada Customs with regard to bringing furnishings into Canada and determined what documentation is necessary.
Telephone – contacted Telus to set up phone and/or internet connection at 1-888-811-2323.
Cable Television – contact Whistler Cable at (604) 932-1111.
Non-Residents in Canada
Required Holdbacks for Non-Resident Sellers
The Income Tax Act (Canada) provides that when a seller is not a resident of Canada, the buyer is required to deduct a withholding tax from the seller’s sale proceeds and remit it directly to the CRA, or ensure that the seller has obtained a Certificate of Compliance. The withholding tax is levied at a 25% rate for non-depreciable property and 50% for depreciable property and property held as inventory. If you are aware that the Seller is not a resident of Canada, please advise us immediately so that we may take steps to avoid any tax consequences to you which may arise as a result of the Seller’s non-residency.
Prior to issuing the Certificate of Compliance the CRA will want to collect any tax payable on the property. Tax payable will include tax on rental income which has not yet been remitted, tax on the capital gain experienced on the property and any recapture of capital cost allowance. We recommend that you contact an accountant to deal with these issues.
Tax on Rental Income
Canada Revenue Agency (CRA) requires non-residents to pay 25% of the gross rental income from the property to CRA. The 25% amount may be reduced by filing a Form NR6 return, which sets out the projected rental income and the expenses associated with the property. A property manager may be able to help you fill out this return. Upon filing an NR6 return, the property holder will be required to file an annual tax return with respect to the property. CRA will only allow expenses to offset the rental income if the returns are filed. Expenses incurred more than two years before the filing of a return will be disallowed. Therefore it is important to keep filings current.
If you intend to furnish your property with items from a home outside Canada it is important to contact Canada Customs in order to find out what their requirements are with respect to avoiding duties on these items.
- Generally, you are permitted one shipment of used personal effects to a recreational residence without being required to pay duty.
- You will be required to show a Form A Transfer form to prove that the items are being brought in to furnish your property. A copy of the form can be obtained from your lawyer.
Annual Tax Returns
- CRA requires a property holder to file a tax return with respect to all income produced from the property.
- CRA will only allow expenses from the past two years to offset income from property, so it is important to keep filings current.
Receipts for Furnishings
- If you are purchasing furnishings for your property and intend for those furnishings to be sold with the property, it is important to retain receipts for the furnishings and show evidence that the furnishings are staying with the property.
- This evidence should include documentation from Canada Customs if the furnishings were brought across the border, or invoices showing delivery of the items to the Whistler address if they were purchased somewhere other than Whistler.
- If receipts and other evidence are not retained, CRA will disallow the deduction of the cost of the furnishings from the sale of the property, increasing the tax payable on a transfer of the property.
Estate Planning Considerations
The right of survivorship associated with joint tenancy may be used as an estate planning tool to avoid probate fees. The passing of joint property circumvents the deceased’s estate and is not subject to probate. Accordingly, some elderly purchasers may choose to register property jointly with their children. Couples would also usually register title jointly.
For non-residents of B.C., the same theory of joint tenancy applies. In addition, however, the non-resident must plan to avoid the possibility of their aggregate world wide net worth being subject to B.C. probate fees. This can be done by holding the property in a corporation, or it can be done by making B.C. wills, limited to assets in B.C. only. For non-residents other than residents of the United States, this is a common planning tool.
Many United States Residents have estate planning trusts and LLC’s. As title generally may not be held directly in such entities, the solution is to hold the title in the name of a B.C. corporation or individual and have an unregistered trust agreement in favour of the beneficial owner.
Any estate planning and title decisions should be made with the assistance of the purchasers’ advisors in their home jurisdiction.
All purchasers of property in B.C., other than corporations, should consider granting their spouse or some other trustworthy individual an enduring Power of Attorney in B.C. Land Title format. This would allow for a sale or mortgage of the property in the event of a loss of mental capacity. Without a Power of Attorney in place, it takes an expensive court application for someone to be appointed to represent the incapacitated individual. Joint tenancy of property is not like a joint bank account, both parties must sign transfer documentation.
British Columbia Mortgages
- Mortgages in British Columbia may differ from those available in the USA in several important ways.
- Mortgages in British Columbia most commonly have a fixed term of between 6 months and 5 years. At the end of a mortgage term, the interest rate is renegotiated.
- Mortgages which float with the Canadian prime rate are also available.
- Both fixed and variable rate mortgages generally allow limited pre-payments per year. The amount of the annual pre-payment will vary depending on the mortgage lender but is generally between 10% and 20% per year.
- If your mortgage is not an open mortgage then if you wish to re-pay more than the annual pre-payment amount set out above, you will generally pay a penalty to the lender. The penalties are usually 3 months interest or the interest rate differential, whichever is greater.
Chronology of Execution of Mortgage Documents
- The borrower signs a commitment letter with the lender.
- The lender instructs a lawyer or notary to draw the mortgage security.
- The documents are couriered or emailed to the borrower for execution in the presence of a notary public.
- The Land Title Office will not always accept faxed documents, so sufficient time must be allowed for the borrower to receive, execute and courier the documents back to Vancouver for filing in the Vancouver Land Title Office on the completion date.
- The balance of the property purchase price must be paid in Canadian Funds by certified cheque or bank draft.
- Exchange rates fluctuate, and lending institutions in the U.S. and Canada may offer different exchange rates or offer different exchange rates for buying and selling Canadian dollars, or offer different rates depending on the dollar amount involved. The exchange rate of the transaction should be settled prior to the actual completion date.
- We utilize the services of Western Union (www.westernunion.com). In our experience, they provide prompt wiring service from your U.S. account as well as competitive exchange rates.
- It is possible to wire funds directly to your solicitor’s trust account, but you should allow sufficient time for the funds to actually appear in the trust account and thus be available for the closing.
- It is recommended that the purchaser open a bank account in Canada in order to facilitate payment (in Canadian funds) of ongoing expenses and to receive revenue from rental of the property.
Completion – Time is of the essence!
- Completing the purchase transaction on the designated completion date is critical in British Columbia.
- If the transaction is not completed on the designated date, the vendor of the property has the option to cancel the contract of Purchase and Sale and is entitled to retain the deposit paid by the purchaser.
It is not uncommon for vendors who wish to continue with the transaction to demand interest or additional charges for extensions for late completion.