Property Transfer Tax on a Business Purchase in British Columbia

A business purchase in British Columbia is not a real estate deal, but it can still touch the province’s property transfer tax. The Government of British Columbia says that when you purchase or gain an interest in property that is registered at the Land Title Office, you or your legal professional must file a property transfer tax return and you must pay the tax, unless you qualify for an exemption. So the question for a buyer is not what the business is called but what interest in land the deal transfers or grants. The Property Transfer Tax Act also says a transferee who is entitled to register a taxable transaction but does not apply to register it must still file a return and pay the tax within a prescribed period. This guide covers how that rule meets a business sale. Other provinces run their own land transfer taxes, and nothing here describes them.

What the Act treats as a taxable transaction

The Property Transfer Tax Act defines a taxable transaction to include one purporting to transfer or grant an estate in fee simple, a life estate, a right to occupy land under a lease agreement, or a right under an agreement for sale to occupy land or to require the transfer of an estate in fee simple. Among the other transactions the definition lists is extending the term of a lease agreement by a lease modification agreement. Those are interests in land. A business that owns its building therefore brings a fee simple transfer into the deal if the land and building are part of what you buy. For comparison with share deals, see land transfer tax on a share purchase.

How the tax is measured

The province says the tax is based on the fair market value of the property, meaning land and improvements, on the day it was registered at the Land Title Office, unless you qualify for an exemption or purchase a pre-sold strata unit. It defines fair market value as the price a willing purchaser would pay a willing seller in the open market on the date of registration. The purchase price is generally considered the best indicator if the property sold in the open market and was registered within a few months of signing the contract. Otherwise the buyer may need to verify that the price reflects fair market value. In an asset purchase that allocates one price across equipment, goodwill and a building, that allocation therefore matters.

Leases and a business in rented premises

A small business may own no land and operate from leased premises. The ministry’s page lists lease, lease modification and prepaid lease among its transaction types, and the Property Transfer Tax Act’s definition of a taxable transaction reaches a transaction between a lessor and a lessee after which that lessee and any other person having the right to occupy the land under a lease agreement will have the right to occupy it for a period that exceeds 30 years in total. Whether taking over an existing lease, or signing a new one with the landlord at closing, is a taxable transaction depends on the lease terms and on how the Act applies to them. Put that question to your lawyer early, with the lease in hand.

Reorganizing before closing and the exemptions

Ask whether the seller moved land into or out of a corporation ahead of the sale. The ministry’s exemptions page lists, among its frequently asked questions, “Do I pay tax when I transfer my property title to my corporation?”, so the answer for any such transfer is worth checking. The page also lists exemptions for newly built homes, purpose-built rentals, First Nations transfers and transfers involving a family farm corporation. None of the headings named here is for buying a business, so a buyer should not assume an exemption applies and should ask the lawyer.

PST is a separate tax with a link to this one

The ministry’s PST bulletin on buying and selling a business says PST does not apply to purchases or transfers of an interest in real property, but that property transfer tax may apply. The same bulletin says PST applies to affixed machinery even when it is included in a purchase of real property, so the two taxes can reach different assets in one purchase. Our guide on provincial sales tax on a business asset sale covers the PST side.

What to confirm before closing

• Order a title search through the Land Title and Survey Authority for each parcel in the deal; the LTSA says a title lists the registered owners and the charges, liens and interests registered against it.
• Ask your lawyer whether the closing registers any transfer, lease or lease extension, and who files the return.
• Settle in the purchase agreement who bears any property transfer tax and how the price is allocated between land, buildings and other assets.
• Ask whether any pre-closing transfer of land between the seller and a related corporation was registered, and whether tax was paid on it.
• Ask your lawyer what the Act’s provision headed lien on land for taxes means for the property you are buying.