When the British Columbia speculation tax was first introduced in February, it’s fair to say it caused a bit of a stir. The tax, which is proposed to come into force this fall, is just one part of a 30-point plan to improve housing affordability in British Columbia.
The tax targets owners of residential properties in BC who predominantly leave their homes empty and those who don’t pay their share of income taxes. The government is confident that the tax will target a minority and that 99% of the population will not be affected by the new levy. So, what exactly is speculation tax and how can it affect you? Read on to find out all you need to know.
Defining Speculation Tax
Urban areas throughout British Columbia are experiencing a housing crisis, with house prices and rent rates skyrocketing far beyond the reach of most pay-packets. The government believes that speculation—the practice of investing in an asset and holding onto it until the market fluctuates to make a profit—is a major cause.
The new speculation tax aims to provide affordable housing in the worst-hit areas. To achieve its goal, a levy is to be placed on those homes owned by foreign or domestic investors who leave their properties empty for extended periods of time. The tax also targets ’satellite families,’ who live in British Columbia, but don’t pay their share of local income taxes. A typical situation would be an unemployed family living in BC, having an income-earning spouse that resides—and works—elsewhere and sends money over.
The tax can be avoided by living in or renting out the property, encouraging owners to provide housing stock in BC’s urban centres.
Areas Affected by the Tax
The proposed tax does not affect the entire province, allowing vacation home owners to breathe a sigh of relief. Lake and island regions, popular communities for second homes, are exempt from tax. Instead, the tax is aimed mainly at urban centres that are suffering from low vacancy rates and face severe housing problems:
- Metro Vancouver
- The Capital Regional District (excluding the Gulf Islands and Juan de Fuca)
- Kelowna and West Kelowna
- Abbotsford, Chilliwack, and Mission.
A Breakdown of the Taxes
The tax is variable and dependent on a number of factors. For the first year of its implementation, however, all homeowners that are subject to the tax will be required to pay 0.5% of the value of the affected property. From 2019 things are set to change in order to better target the speculative owners who are most likely to severely affect the housing market:
- Foreign investors and satellite families will be required to pay 2% of the value of their home per year;
- Canadian and permanent residents that own a property in BC, but do not live in the province, will be required to pay 1% per year;
- British Columbians (Canadian citizens or permanent residents) living in BC—who are not members of a satellite family—will continue to pay 0.5% per year on any property that isn’t their primary residence or isn’t rented out.
All primary homes of BC residents are exempt. Indeed, the government believes that 99% of British Columbians will not be affected by the tax, as the majority of the homes in the affected areas are either owner-occupied or rented.
In 2018, homes must be rented for at least 3 months of the year to avoid the tax, though this will increase to a 6-month minimum from 2019. Rental periods must be in increments of at least 30 days at a time to qualify.
All British Columbians who own a vacant second home in an affected area are eligible for a tax credit. This is immediately applied against the speculation tax, providing an offset of up to $2,000—exempting homes valued at less than $400,000. Essentially, this safeguards the vast majority of BC residents from the tax altogether and allows the government to target foreign speculators.
It’s worth noting, however, that the tax credit can only be applied against one property. If you own 2 or more vacant homes in an affected area, you will still have to pay speculation tax on all but one of them.
As well as the previous exemptions, the government has made allowances for special circumstances. For example, if the owner is undergoing long-term health care in a hospital or care facility, they will be exempt from the tax. Likewise, those homeowners who must work away from home a lot are excluded from the tax. The same applies to properties rented by tenants who spend long periods away due to work. Finally, if the owner is deceased, the property is exempt from tax until the administration process is complete.
On the whole, the speculation tax appears to be of no concern for the vast majority of British Columbians. Aimed primarily at owners of one or more vacant properties in the province’s hardest hit urban centres, the tax may well encourage owners to rent out their homes and provide affordable living. If you own multiple properties, it’s worth ensuring you won’t be affected by the tax and double check each point mentioned above!