Canada: B.C.'s New Speculation And Vacancy Tax Receives Royal Assent

A new Speculation and Vacancy Tax Act was recently passed by the B.C. legislature and received Royal Assent on November 27, 2018. The new tax is an annual tax on residential property located within B.C.'s major urban centres. Don't let the name fool you — the tax is more of a vacancy tax on underutilized properties than it is about speculation. Accordingly, those that do not consider themselves speculators may still be subject to the tax. Foreign owners and individuals living in B.C. but with a spouse working abroad are also targeted.

Property owners within the City of Vancouver may already be familiar with the city's empty homes tax. These property owners should not expect uniformity between the two tax regimes; these are distinct taxes enacted by separate laws, each with its own distinct exemptions and requirements. Being exempt from one does not necessarily mean that you will be exempt from the other.

We outline some key information below.

Deadline for new property declaration

Property owners will have to make an annual declaration with the first being due by March 31, 2019 in respect of the 2018 calendar year. If any speculation and vacancy tax is owing, payment will be due by July 2, 2019. The declaration can be completed online or over the phone. The registration system is expected to open on January 18, 2019.

Foreign owners and satellite families

One of the province's purported tax target is foreign owners and satellite families. Foreign owners are property owners who are not Canadian citizens or permanent residents. A satellite family is an individual, together with his or her spouse, who do not report a majority of their income on a Canadian tax return.

If you have a spouse who lives, works and pays tax in a jurisdiction outside of Canada, you will need to carefully consider these rules; their application will result in stricter conditions to claim exemptions and higher tax rates on vacant property.

Ownership structure

Where there are multiple owners on title, each owner will be required to file a property declaration.

Where the owner is a corporation, a partner of a partnership or a trustee of a trust, you will need to look through these entities and carefully consider the individual(s) that have the ultimate interest or control in the property. If any such individual(s) is a foreign owner or member of a satellite family, this will have implications for claiming exemptions and on the tax rate you pay. Even where such an individual resides within Canada but outside of B.C., this may jeopardize the availability of certain exemptions.

Tax rates

All owners of vacant properties, regardless of residency or citizenship, will pay tax at a rate of 0.5 per cent for the 2018 calendar year.

Beginning in 2019, the tax rate on vacant property is 0.5 per cent for B.C. residents and Canadian citizens or permanent residents. Foreign owners and members of satellite families pay a 2 per cent rate.

The tax is calculated as a proportion of the assessed value of the property, which can be determined by searching your address on the B.C. Assessment website.

Exemptions

All owners of residential property within a specified region will pay the speculation and vacancy tax unless an exemption can be claimed. There are a number of exemptions available, each which require specific conditions to be met. The most common exemptions will include where a property was used as a principal residence, was rented out to a tenant (note that short-term rental arrangements do not qualify), where construction of a new home or substantial renovations were carried out, or where the property was acquired within the year.

The specific requirements for each exemption should be carefully considered with special attention being paid to defined terms and interpretive rules. This is especially true where the owner includes a corporation, partnership or trust, or where any foreign owners, members of satellite families or non-B.C. residents are involved.

Tax credits

Those that must pay the speculation and vacancy tax may be able to claim a tax credit on any income they have in B.C.

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