7/2/2014. Information Session. Faculty Home Ownership Program. Lisa Colby, Faculty Staff Housing & Relocation Services Peter Smailes, Treasurer

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1 Faculty Home Ownership Program Information Session June 2014 Lisa Colby, Faculty Staff Housing & Relocation Services Peter Smailes, Treasurer 1

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4 Agenda A. Introduce you to people & resources Resources Here Today UBC Housing & Relocation Services Treasury Office UBC Properties Trust B. Next Steps & New Information C. Open House Format - Specialty Tables: o Station 1: 2 nd Mortgage Loan option; and Eligibility, Allocation &Occupancy turnover rules for both options o Station 2: Restricted Resale Capped Appreciation option o Station 3: Taxable Benefits & Down Payment Assistance option 8 Next Steps 1. Check in with our office for Information to Get Started 2. Apply to Royal Bank of Canada (RBC) for Pre-qualification for a mortgage 3. Review all available Program Information 4. Obtain Independent Financial and Tax Advice when choosing between 2 nd Mortgage Loan or Restricted Resale Capped Appreciation options 5. Go Shopping Sign a binding Purchase Agreement 6. Complete Financing Arrangements by Executing Mortgage Agreements 7. Complete Closing Conditions before Closing Date 8. Move In (on Occupancy closing Date) Faculty Home Ownership Program Two variations of 99 year lease program Restricted 2 nd mortgage loan option Restricted Resale Capped Appreciation option 3 year pilot, 150 units future cycles if successful up to 900 units over 30 years Both options are: On-campus only and worth up to 33% of a new home For tenured and tenure-track faculty only Limited in number Final allocation approval subject to academic selection process Turnover triggers subject to policies developed by academic committee Trigger taxable benefits 4

5 Restricted 2nd Mortgage Loan Option 0% interest 2 nd mortgage loans (not units), participating interest when repay Up to 33% purchase price, max $330,000 loan Applicable to designated new market projects on campus (private developers) Restricted 2nd Mortgage Loan Option (cont d) Repay UBC Properties Trust original loan value plus 33% any appreciation, or minus 33% any depreciation appraised at time of repayment where original loan less than 33% (e.g. 25%) repayment will be same % Monies repaid will fund new loans for other approved faculty No resale restrictions or appreciation cap In declining market, UBC still repaid only 33% new price Repay loan after earliest of: voluntary resale, 30 years, or turnover trigger Taxable benefit payable on annual deemed interest (1%) and any 33% market decline not paid by faculty. Designated Projects for 2 nd Mortgage Loan Restricted Resale Capped Appreciation Option UBC Properties Trust develops building Sells units 33% below market to faculty approved by selection committee Resale restricted to waitlist, faculty pool, as first priority Backstopped by public market Appreciation capped at lesser of faculty salary index or 33% below market Can live in it until death, subject to occupancy rules Taxable benefit on initial 33% savings in first year of purchase 5

6 Village Green Location Sale of the Unit/Loan Repayment Triggers Leave full time employment No longer live in the home, separation/divorce Retire in less than 15 years Refinance for more than the outstanding mortgage balance Acquire 2 nd home in Metro Vancouver Leave Tenure track for any reason Death Village Green Who and where are we? 8 Next Steps 1. Check in with our office for Information to Get Started 2. Apply to Royal Bank of Canada (RBC) for Pre-qualification for a mortgage 3. Review all available Program Information 4. Obtain Independent Financial and Tax Advice when choosing between 2 nd Mortgage Loan or Restricted Resale Capped Appreciation options 5. Go Shopping Sign a binding Purchase Agreement 6. Complete Financing Arrangements by Executing Mortgage Agreements 7. Complete Closing Conditions before Closing Date 8. Move In (on Occupancy closing Date) 6

7 Taxable benefits Taxable Benefits Faculty home ownership program Income tax law provides that an amount paid, or assistance provided, in respect of an individual s office or employment, for the acquisition or use of a residence is a taxable employment benefit. UBC as an employer is required by law to calculate, report, withhold, and remit tax on cash & non-cash taxable benefits. The employee is solely responsible to pay any income tax on taxable employment benefits. Taxable benefits cont. UBC withholds income tax from an employee s payroll and then remits the tax to Canada Revenue Agency ( CRA ) Most taxable benefits appear on the employee s paystub. At the end of the tax year, the total of all taxable benefits in respect of housing will appear on an employee s T4. Faculty home ownership program UBC has determined that taxable benefits arise on housing assistance programs, including: Restricted Resale Capped Appreciation Restricted Faculty Second Mortgage Loan Under the program a economic benefit is provided by an UBC to its faculty members. 7

8 Note: The estimated tax will be due at the time the employee repays the second mortgage loan. 7/2/2014 Taxable benefit - Restricted Faculty Second Mortgage Loan A taxable benefit arises based on the difference between the interest on the loan outstanding at the prescribed rate of interest & the actual interest paid. Prescribed rate is set by the CRA each quarter (based on on government bonds) The prescribed rate that applies when a loan is first advanced is the maximum rate applicable to that loan for five years. The rate is reset at the end of each 5 year period to the then current rate if the loan is still outstanding. Please note that the examples that follow are for illustrative purposes only Example 1 Taxable Benefit 2 nd Mortgage Loan Benchmark value A $600,000 Second mortgage loan B $198,000 Prescribed interest rate D 1% Taxable benefit for a 12 month period Tax due per month (45.8% x 1,980/12) C x D $1,980 $75 Note: Illustrative example of taxes due, assuming highest rate marginal tax (45.8%) and CRA prescribed interest rate of 1% Note: UBC is planning to withhold in the last pay period of each quarter. Example 2 Taxable Benefit 2 nd mortgage loan If a loss arises on the sale of a unit subject to a second mortgage loan, subject to certain conditions, UBC will forgive a portion of the loan. The loan amount that is waived in such a scenario is regarded as a taxable benefit on the value of the home at the time of repayment. Purchase Price X $600,000 Sale price Y $550,000 Second mortgage provided E (33% x X) $198,000 Second mortgage repayable F (33% x Y) $181,500 Taxable benefit equal to the portion of the loan that is forgiven E-F $16,500 Tax due in the year of sale (45.8% x $16,500) $7,557 Taxable benefit Capped Appreciation In this program, an eligible faculty member will purchase a housing unit at a discount. A benchmark value (retail value) is determined for the housing unit, which is an approximate measure of the value of the unit in an unrestricted market. The employee pays 67% of the benchmark value (purchase price) A non-cash taxable benefit arises on the difference between the value in use of the housing unit and the purchase price for the housing unit. The value in use represents the value to a particular individual and is described as a percentage of benchmark value in the range 77.7%-81.7%, dependent on unit type. The employee is required to pay the estimated taxable benefit as part of closing costs. 8

9 Example - Capped Appreciation Benchmark Value (retail value) Value in use (81.7% of Benchmark Value) $600,000 $490,200 (A) Taxable benefit (A-B) =$88,200 TERM Benchmark Value Purchase Price Value in Use Definition Glossary of terms Fair Market Value of an unrestricted unit, also described as Retail Value. Price paid by the faculty member for the unit before taking into account taxes and legal costs associated with the purchase This is calculated by taking a % of the Benchmark value. The % depends on the type of unit as follows: Purchase price ($600,000 x 67%) Taxable benefit $402,000 (B) $88,200 The Value in Use can also be described as a premium on a purchase price (where purchase price is calculated with reference to Benchmark Value) : Tax due upon acquisition of the property (45.8% x $88,200) $40,396 What is the process when I want to resell or repay? For the 2nd Mortgage Loan, the process includes but is not limited to the following steps : you must inform UBC and UBC Properties Trust of your intention to sell; the loan must be repaid when the sale closes; UBC can buy the property; you may sell the property to anyone; you must sell at fair market value; prices and conditions of sale must be approved by UBC Properties Trust; an appraisal can be required by UBC; the mortgage is repaid plus participating interest in any appreciation or depreciation. In the event of depreciation, you must pay the tax on the taxable benefit arising from a loan amount waived. What is the process when I want to resell or repay? For the Restricted Resale Capped Appreciation the process includes but is not limited to the following steps you must inform UBC of your intention to sell; an appraisal will be required; UBC will advise you of the calculated capped appreciation resale price according to the formula in the Program Description; UBC will identify the next eligible faculty buyer for you; UBC can also buy the property; UBC will widen the buyer pool if necessary in order that you can sell the home; the buyer will be bound by the same maximum limits on resale price, and resale restrictions. The employee is required to pay the estimated tax payable on the taxable benefit as part of the closing costs. 9

10 Follow up with independent financial and tax advice Independent Financial Advisors: Chartered Accountants: Remember: You have 15 months to sign a Purchase Agreement More detailed documentation is available upon request Support from our office available anytime Contact us at info.facultyhousing@ubc.ca Thank you. any questions? 10