On Feb 20, 2018, the NDP government announced their budget that made significant changes to many aspect of the province, including in the areas of real estate. The changes included property transfer tax and came in effect on Feb 21, 2018 and the Speculation Tax.
This column will focus on the Speculation Tax, which the new NDP government wants to introduce as an effective measures to cool the red hot housing market in BC.
Before we go into details, it needs to be emphasized that Speculation tax has not been enacted as a law yet so at this point of writing this column, it is just an announcement. Therefore, most likely many details will change once it is codified in the fall of this year.
However, they have announced that the tax rates will apply starting year 2018 so it is believed that the speculation tax, if it becomes a law, will be retroactive.
Speculation tax is anticipated to work very similar to the Vancouver Empty Home Tax that was introduced last year. It will be applicable to those residential properties that are unoccupied or under occupied in the applicable region. The reason that the government’s rationale for taxing these homes are because they believe these homes left empty are causing supply issue and driving up the price of real estate in BC artificially.
Additionally, it seems that for those who own a property in the City of Vancouver and are having to pay Empty Home Tax will also have to pay this Speculation Tax as well and will not cancel each other out.
Rate design
Unlike the Vancouver Empty Home Tax, the proposed Speculation Tax will change in its rates, depending on the year, your legal immigration status and location of your residency.
In 2018, the tax rate for all properties subject to the tax is 0.5% of the property value.
In 2019 and subsequent years, the tax rates will be as follows:
- 2% for foreign investors and satellite families;
- 1% for Canadian citizens and permanent residents who do not live in British Columbia; and
- 5% for British Columbians who are Canadian citizens or permanent residents (and not members of a satellite family).
Although they have not specified, there is strong possibility that the Speculation tax will define the Canadian Citizens and permanent residents as it is defined in Immigration and Refugee Protection Act, much like the Property Transfer Tax Act – as both are provincial legislation.
How they will define if you are residence of BC is little more open-ended; however, it can be speculated that they will again base this on current rules applied in Property Transfer Tax and how they define BC residency for 1st time home-buyers exemption – have your principal residency in BC for at least a full year or filed at least 2 income taxes in BC within last 6 years.
Area boundary
The proposed area boundary was much debated and thus it appears that it has the highest chance of being modified upon the tax becoming legislated. Currently proposed areas being affected are as follows:
- Metro Vancouver
- The Capital Regional District (excluding the Gulf Islands and Juan de Fuca)
- Kelowna and West Kelowna
- Nanaimo-Lantzville
- Abbotsford, Chilliwack and Mission
For the map of the area boundary, please visit:
https://news.gov.bc.ca/files/2018_SpeculationTax_Map.jpg
Exemptions and tax credit design
There are exemptions available and due to this exemptions, the BC government is claiming that this Speculation Tax will not affect 99% of the British Columbians. The two most common way to receive exemptions would be by declaring a home as your principal residence or by qualifying as a long-term rental.
Also, British Columbians with vacant second homes will be eligible for a non-refundable tax credit that is immediately applied against the Speculation Tax. This credit will offset a total of $2,000 in speculation tax payable. This tax credit will ensure that British Columbians do not pay tax on a second home valued up to $400,000.
Definition of long-term rentals
A long-term rental is defined as a property that is rented out for at least six months out of the calendar year in increments of at least 30 days. This is the definition that is applied for the Vancouver City’s Empty Home Tax as well. For the year 2018, a long-term rental is a property that is rented out for three months of that year.
Special case exemptions
As announced in Budget 2018, there will be exemptions for homeowners facing special circumstances. The full exemption categories are not clear at this point but these include:
- The owner or tenant is undergoing medical care or residing in a hospital, long-term care or a supportive-care facility;
- The owner or tenant is temporarily absent for work purposes;
- The registered owner is deceased, and the estate is in the process of being administered.
Based on the information provided at this point regarding the Speculation Tax, it seems like it will be very similar provincial government’s version of the Vancouver City’s Empty Home Tax.
The Finance Minister Carole James made it clear that she wants to stop those who are treating housing market like a stock market. By doing so, they want to create a better life for the British Columbians by allowing them to live in the area that they work in.
If you have further questions, please do not hesitate to contact our office and speak to myself or any of my friendly staff.
This is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.
If you have further questions, please do not hesitate to contact our office at (778-379-8577) and speak to Paul Choi or any of our friendly staff.