Earlier this year, the government of British Columbia implemented a new tax called the speculation and vacancy tax as part of a larger 30-Point Plan to address skyrocketing housing costs in the province. The tax is aimed at foreign and out-of-province speculators who own secondary properties in British Columbia but do not pay taxes in the province. The government estimated that 99% of BC residents would be exempt from the tax.
What is the Speculation & Vacancy Tax?
Simply put, the tax applies to residential properties in taxable regions of British Columbia that are not used as a primary residence.
Anyone who owned a residential property in the taxable regions of British Columbia as of December 31, 2018 was sent a letter setting out their obligations with respect to the new tax, along with a declaration form. Although the vast majority of owners were expected to be exempt, every property owner was required to file an annual declaration; the first one being due by March 31st of this year. Even in cases where multiple people own one property (such as a married or common-law couple), each individual owner is required to submit their own declaration. The vast majority of owners are expected to use the declaration to claim some form of exemption from the tax.
The tax is charged at a rate of 0.5% of the assessed value of the property for 2018. In 2019, the rate will remain the same for Canadian citizens or permanent residents of British Columbia who are not part of a satellite family but will increase to 2% of the assessed value for foreign owners or members of satellite families.
What is a ‘Satellite Family’?
A satellite family is any family or individual, including Canadian citizens and B.C. residents, who declares less than 50% of their annual income on a Canadian tax return.
Who is Subject or Exempt?
Only certain regions of British Columbia are subject to the speculation & vacancy tax. These regions include:
- Municipalities within the Capital Regional District, except Salt Spring Island, Juan de Fuca Electoral Area, and the Southern Gulf Islands.
- Metro Vancouver municipalities, except Bowen Island and the Village of Lions Bay.
- West Kelowna
- District of Lantzville
For owners with properties in a taxable region, a number of potential exemptions apply. First and foremost, a property is exempt if it is the primary residence of the owner(s). In addition to that, a number of other exemptions may apply:
- Principal residence exemptions
- Previous principal residence
- Occupied by a tenant
- There is a distinction made between an arm’s length tenant vs. a non-arm’s length tenant. A non-arm’s length tenant has the benefit of some advantage in dealing with the landlord. For example, a family member would be considered a non-arm’s length tenant. Different rules apply to the different types of tenants in order to qualify for this exemption.
- Can’t live in the residence because it’s uninhabitable
- Secondary residence close to a medical treatment facility
- Just bought or inherited the property
- “Just” means within the taxation year. For example, if a person inherited a home as a beneficiary to a Will in 2019, the property will be exempt from the tax for the 2019 taxation year.
- Separation or divorce
- The recent death of the owner
- Again, “recent” refers to the taxation year. If the owner of property dies, the property will be exempt for that year under this exemption.
- Property is in a trust created by a will for a minor
- Property has rental restrictions
- Property is a strata hotel
- The property includes a licenced child daycare
- No residence on the property
- Other exclusions from the tax
Tax Increase and New Rules on Exemptions to Come Into Effect
As mentioned above, the tax rate for foreign owners and owners in satellite families is increasing at the end of 2019 from 0.5% to 2% of the assessed value of the property.
In addition to the increased rate, some new exemptions will come into effect, while some existing exemptions will be phased out.
An additional exemption is expected under the following circumstances:
- For active members of the Canadian Armed Forces and their families;
- For properties that are only accessible by water;
Meanwhile, the following exemptions are set to be phased out:
- The exemption for foreign owners of vacant land;
- The exemption for empty strata properties where rentals are prohibited by the strata corporation (note that this exemption is set to be phased out by December 31, 2021).
Contact an Experienced Real Estate Lawyer for Guidance with Respect to the Speculation & Vacancy Tax
Property owners who are unsure of their obligations with respect to the speculation & vacancy tax should reach out to a skilled real estate lawyer as soon as possible to review their properties and any potential tax obligations. As an owner, you may qualify for an exemption above, but the rules can be complex and a lawyer will be able to provide sound guidance in this regard. Those considering purchasing a second home in British Columbia should also consult with a real estate lawyer, who can advise on strategies to avoid taxation under this new plan.