The Speculation and Vacancy Tax Act

The Speculation and Vacancy Tax Act (the “Act”) was enacted by the British Columbia provincial government on November 27, 2018. The purpose of the Act is to combat speculation in the residential housing market and turn empty houses into homes for BC residents.

General Information about the Act

Unless exempted, all owners of residential property in designated regions must pay the speculation and vacancy tax (the “Speculation Tax”). The designated regions include most of the Capital Regional District and Metro Vancouver, the Cities of Abbotsford, Chilliwack, Kelowna, West Kelowna, and Nanaimo, as well as the Districts of Mission, and Lantzville.
Every owner of a residential property on December 31 in those regions must make a declaration by March 31 of the following year, even if the owner no longer owns the property.

The Speculation Tax is calculated as follows:
Tax payable = (tax rate) x (owner’s interest) x (assessed value of the property)

For 2018, the tax rate for all owners is 0.5%. For the 2019 calendar year and beyond, the tax rate will be 0.5% for Canadian citizens and permanent residents who are not members of Satellite Families (defined below). Foreign owners and members of Satellite Families will be charged a tax rate of 2%. “Satellite Families” are households who declare less than 50% of their total income for the year on Canadian income tax returns.

Owners who owe taxes must pay by July 2 of the year following the assessed year. For the 2018 calendar year, the Speculation Tax must be paid by July 2, 2019. Failure to pay on time may result in interest and penalties.

Exemptions
If an owner qualifies for one of the following exemptions, they will not have to pay the Speculation Tax. However, failure to declare will result in being assessed at the highest tax rate (2%), even if the owner would have otherwise been exempt. Below is a list of some, but not all, of the exemptions under the Act.

1. Principal Residence
Owners are exempt if the residential property is their principal residence. If owners own multiple properties, they can only claim this exemption for the place they lived the longest in. Spouses cannot claim two different places unless there is a specific reason, such as work, medical leave, or divorce. Foreign owners and members of a Satellite Family cannot claim this exemption. If the owners do not live in the residence for the necessary time, they may still be able to claim the exemption if they were absent for certain reasons, such as medical leave or residential care.

2. Tenants
If the property is occupied by a tenant for periods of at least 30 days and for a total of 6 months (3 months for 2018), the owner can claim an exemption. There must be a written tenancy agreement, unless the tenant has a non-arm’s length relationship with the owner (e.g. close friend of family member).

3. Under Construction or Renovation
If the property is uninhabitable for a period of at least 90 days due to construction or renovations, the owner may be able to claim this exemption. The owner must demonstrate that they have taken reasonable steps to ensure that the building activity continues without undue delay, or that any undue delay was beyond their control.

Other Information
The Speculation Tax is completely separate from an owner’s other taxes, including income tax, property tax, and the Vancouver Empty Homes Tax.

The Speculation Tax attaches to the owner, not the property. This means that a new buyer does not have to worry about hidden liability when they buy a house and that the seller may be liable to pay the Speculation Tax even after they sell a house.

Owners may be able to claim tax credits against any Speculation Tax assessed. BC residents who are not members of a Satellite Family get tax credits of $2,000 per property and per person, which means that the first $400,000 of a property will usually be tax free.

If you have any questions about how the Speculation and Vacancy Tax Act may apply to you, please contact Heath Law LLP at 250-753-2202 or toll free: 1-866-753-2202.