There are costs associated with buying any home, and buying a home in Fernie is no exception. Here is a brief summary of the costs associated with buying a home both for residents and non-residents of Canada.
These may include the mortgage companies lawyer or notary fees, appraisal fee (if applicable) and land title registration fees.
Property Transfer Tax
This is a Provincial Government Tax that applies to all transfers of real estate and is payable on the completion date. The rate of the tax is 1% on the first $200,000 of the purchase price and 2% on the balance.
Goods and Services Tax (GST)
This is a 5% tax that applies to the purchase of new construction and on the resale of accommodations that have been rented out for short term or nightly rental. The payment of the GST can be deferred if the new purchaser intends to use the accommodation for short term or nightly rental at least 90% of the time and she/he becomes a GST registrant. See the GST page for more information on the GST.
Buyers are required to arrange insurance on single family residential accommodations, and liability and contents insurance on strata-titled properties.
Of special concern to condominium and townhouse purchasers, there will be monthly maintenance charges, and the Strata Corporation is also entitled to levy special assessments for extraordinary expenses if necessary.
Additional information for Non-Residents
Withholding Tax on Rental Income
You may obtain an exemption from the 25% non-residents are required to pay to Revenue Canada by filling out a simple form called an NR6, explaining that the projected rental income is less than the anticipated expenses associated with the property. After filling out this form, you must also file a tax return with Revenue Canada.
Execution of Mortgage Documents
Once the borrower has signed a commitment letter with the lender, the lender will instruct a lawyer or notary to draw the mortgage security. These documents must be couriered to the borrower for their execution in the presence of a notary public. What this means to the buyer is simply that sufficient time be allowed to courier the documents as faxes or other methods of transmission are not possible in this case.
Methods of Payment:
It is recommended that the purchaser open a bank account in Fernie for the transfer of funds. The balance of the purchase price must be paid by certified cheque or bank draft in Canadian funds. Since exchange rates fluctuate from institution to institution, from day to day, and depending on the amount to be exchanged, it is important to research this before the completion date.
Completing the Transaction:
It is critical to complete transactions on the designated completion date in British Columbia. The vendor has the option of canceling the contract of Purchase and Sale should the funds not be paid on the stipulated completion date, and is entitled to retain the deposit. It is not uncommon for vendors who wish to continue with the transaction to demand interest or additional charges for extensions for late completion.
It is important to note that some rules are different in Canada and you should be aware of them before you finalize your purchasing decisions.
Financing criteria: Basic
When financing a home in Fernie or anywhere in Canada, there are two criteria.
• First, housing costs including the mortgage payment, taxes, utilities and strata fees cannot exceed 32% of your gross income. If you have no other debt, an exception can be made. Total debt servicing, including all other loans and credit payments cannot exceed 44% of your gross income.
• Secondly, in a conventional mortgage, a down payment of 20% is required. The exceptions to this are high ratio, insured mortgages that are available for your primary residence with a minimum of 3% down payment. The insurance cost increases as the percentage of financing requested increases.
Financing criteria: Higher Valued Properties
• With higher valued properties, lending values decrease as the value of the property increases.
• For a property valued at or below $500,000, the conventional down payment of 20% is required.
• For the next $250,000, a down payment of 40% is required.
• For the next $250,000, a down payment of 45% is required.
• And then 50% of the remainder. (There are exceptions to these rules, contact your mortgage broker for details)
• For example, with a purchase price of $800,000, the maximum mortgage allowed is $552,500. This applies to Canadian residents only, either owner occupied or investment properties.
For non-residents, the required down payments are slightly different.
• For the first $400,000, a down payment of 35% is required.
• For the next 300,000, a down payment of 45% is required.
• Then 50% for the remainder. (There are exceptions to these rules, contact your mortgage broker for details)
• For example, if the purchase price is $800,000 the maximum mortgage allowed is $475,000.
The GST, Goods and Services Tax, is a 5% federal tax. It is a value added tax and in the case of real estate, it applies to the purchase of new construction and on the resale of accommodations that have been rented out for short term / nightly rentals. It also applies to most of the services provided in completing a real estate transaction.
The payment of GST can be deferred if the new purchaser is going to continue to offer the property for short term or nightly rental for 90% of the time and becomes a GST registrant. Becoming a GST registrant is a straightforward procedure of completing four forms. Once you are a GST registrant, you are entitled to claim credits for the GST that you pay, for example on legal fees, property management fees, and utilities such as electricity, gas, cable and telephone. You are then required to charge, collect and remit GST on the nightly rentals, which in some cases may be done through your property manager. You will be required to file an annual GST return as well.
GST rebate is available under certain conditions where the house is to be a principal residence. However, most properties in Fernie do not apply.
GST on New Homes
When you buy a newly constructed home, condominium or townhouse, the entire purchase price including land is taxable. If the home is going to be your primary place of residence, it may qualify for a partial GST rebate, depending upon the sale price. If the property is to be rented to tenants, the full 5% GST is charged on the purchase price.
GST on Resale Homes
There is no GST on the purchase price of a used residential property that has been occupied as a residence before you bought it. Used residential property includes an owner occupied house, condominium, apartment, summer cottage, vacation property or non-commercial hobby farm.
It is recommended that you consult your accountant or the Canada Revenue Agency for more details concerning GST and how it might apply to your purchase or sale.