Property Transfer Tax is the bane of many purchasers of real property. A recent spate of appeals by the Province of values has exacerbated the painful feeling for many.
A recent BC Supreme Court case has affirmed the rights of arm’s length parties to determine value.
In the case, the contract between the parties contained a relatively simple provision that said the purchase price would be allocated between the real property and the business that was being purchased. The parties then agreed on an allocation of value to the real property.
The Property Transfer Tax Act defines Fair Market Value (“FMV”) as: ‘(a) for a transaction referred to in paragraph (a)(i) of the definition of “taxable transaction”, the amount that would have been paid for the fee simple interest in the land had it been sold at the date of registration of the taxable transaction in the open market by a willing seller to a willing purchaser free of any trust and unencumbered […]’
In the case decided by the Court, the Province had argued that FMV should be the 2019 Assessed Value rather than the 2018 value used by the parties.
The Court decided that the fact that the parties determined the price in an arm’s length open market transaction and given there was no evidence that the relationship between the parties was a sham, what the parties agreed was conclusive of FMV.
The takeaway from this case is to be sure to include a provision in a contract that addresses the allocation of a price so there is clear agreement between the parties about what is the FMV of the property being purchased. Also, to be clear, this case is about arm’s length parties.
Disclaimer: This is not legal advice.