On Dec. 31, the BC government will raise the Speculation and Vacancy Tax from 0.5% to 2% of the assessed value of a property, according to a recent announcement. In particular, this will affect foreign owners and satellite families, most of whom have income that is not reported on a Canadian tax return.
As part of the announcement, Finance Minister, Carole James, said:
“When we introduced the Speculation and Vacancy Tax, our province was at the peak of a real estate crisis and moderation in the market was long overdue.”
The government says the tax is working as it was meant to, based on data they’ve collected throughout the last year. The tax was implemented to collect from speculators, people who own vacant homes and foreign owners.
The tax – which was introduced on Dec. 31, 2018 – focuses on homes in BC’s most populated areas. The homes targeted have not been declared as a primary residence and are not rented out for at least three months per year. Under those stipulations, more than 99% of British Columbians are exempt.
In addition to properties in Vancouver, the tax also applies to homes in Kelowna and West Kelowna, Greater Victoria, Mission, Nanaimo, Abbotsford, Chilliwack and Lantzville. Furthermore, the provincial surcharge in Vancouver is in addition to the municipal empty homes tax.
Changes to Exemptions
Along with the increase, there will also be some new exemptions added to the tax, as well as some existing exemptions removed.
New exemptions will include people who own properties that are only accessible by water and active service members of the Canadian Armed Forces and their spouses.
The exemption for foreign owners of vacant land will end on Dec. 31, 2019, while the exemption for empty strata properties in buildings where rentals are banned will be removed by Dec. 31, 2021.
Strata properties are those where an individual owns part of the property and the remainder of the property is under shared ownership, such as apartments and townhouses. Under the new rules, the tax will be levied if a strata unit is unoccupied, even if rentals are prohibited by the building’s bylaws.
Another change under the revised rules involves increasing the identification and other information required from trusts, corporations and foreign owners in applications for exemption. The change is meant to improve compliance and prevent tax avoidance.
Effects of the Tax Thus Far
According to the Finance Ministry, since the tax was introduced, foreign owners have paid approximately $115 million. The government said that the money was funding affordable housing projects in BC to help offset housing issues.
Specifically, in September, the province reported that the tax had been paid by 11,783 property owners for 9,386 properties thus far. The government said more than 17% of foreign national-owned properties are required to pay the tax, while close to 15% of properties owned by satellite families must do the same.
Since its implementation, the tax has been met with some concerns surrounding definitions of satellite families and foreign nationals, and how these definitions determine whether someone must pay the tax. Other concerns have been raised about whether the tax is actually opening up more rental availability to help address a lack of affordable housing in the province.
Acknowledging the various concerns raised, Minister James said:
“I recognize there are a variety of views on the Speculation and Vacancy Tax. There are those who oppose the tax and others who want to implement additional tax. I look forward to continuing discussions as we work together to tackle the housing crisis.”
With the increase in tax and removal of some exemptions, the provincial government will likely see an increase in tax income, which could continue to help fund housing projects for even more access to affordable housing options. Encouraging owners to rent out vacant properties to avoid paying the tax could also help address the need for affordable housing in the province going forward.