Provincial Government Provides Some Clarity on the Speculation Tax
On February 21, 2018, the provincial government released its budget for 2018. The budget announced a slew of measures to attempt to address housing affordability in the province. One such measure is a “speculation tax” on residential properties located in urban areas of the province. The intent of the speculation tax is to increase the supply of housing in those areas by levying an extra property tax on properties that are left vacant. The budget was sparse on details about how the tax would actually be implemented and many homeowners have been left wondering how it could affect them and their properties.
On March 26, 2018, the Ministry of Finance released new information in an attempt to clarify how the speculation tax will operate. This article is a brief compilation of the important publicly-known information about the speculation tax as of March 29, 2018.
What areas will be covered by the speculation tax?
The government’s intent is that the speculation tax will apply to properties located in urban areas. Currently, the speculation tax will apply to residential properties located in:
- Metro Vancouver (excluding Bowen Island and Electoral Area A, but including UBC)
- The Capital Regional District (excluding the Gulf Islands and Juan de Fuca)
- Kelowna and West Kelowna
- Abbotsford, Chilliwack and Mission
Who will have to pay the tax?
Anyone who owns a residential property in a designated area will be required to pay the speculation tax unless they qualify for an exemption.
What exemptions will be available?
There will be two main exemptions from the speculation tax:
- Primary residences: residents of British Columbia who live in a property that they own and the property is their primary residence will be exempt from the speculation tax.
- Long-term rentals: properties that are rented for at least six months in a year will be exempt from the speculation tax.
Essentially, the speculation tax will not be payable by owners of property if the property is their primary residence or they rent the property to others to live in. Notably, the long-term rental exemption applies only if the rentals are at least 30 days in length. This means that properties that are only rented by the owners on a short-term basis through online services and apps will not qualify for the exemption, even if they are rented in aggregate for more than six months in a year.
When will the speculation tax be in effect?
Although the government has not announced a date that the tax will take effect, it is anticipated that it will apply for properties owned at the end of 2018 and onward.
What will the rate of the speculation tax be?
The speculation tax is based on the assessed value of the property.
In 2018, the rate of tax will be 0.5% of a property’s value.
In 2019 and subsequent years, the rate of tax will be:
- 0.5% for residents of British Columbia who are Canadian citizens or permanent residents,
- 1% for Canadian citizens or permanent residents who are not residents of British Columbia, and
- 2% for persons who are not Canadian citizens or permanent residents.
Residents of British Columbia who are Canadian citizens or permanent residents will be eligible for a $2,000 tax credit that will be applied immediately to any speculation tax that they owe. This means that they will only owe speculation tax on properties above $400,000 in value and only on the value of the property that is in excess of that amount. If BC residents own multiple properties that are subject to the speculation tax, this credit will only apply to one property.
What do we not know yet about the speculation tax?
Although the announcements from the Ministry of Finance on March 26 helped clarify some of the confusion surrounding the speculation tax, there are still many questions left to be answered. For example:
- will there be an exemption from the speculation tax for properties subject to strata bylaws that prohibit rentals?
- will there be a requirement that a person live in the property for a certain amount of time in the year to be able to claim the exemption for primary residences?
- if a property is not a person’s primary residence, but he or she happens to live in it for more than six months in a year, will they be exempt from the tax even though the property is not rented and is not his or her primary residence?
- if the property is not a person’s primary residence, but a family member of the owner lives in the property and does not pay rent, will the property be exempt?
- “satellite families” will pay the higher 2% level of tax and not be eligible for the principal residence exemption, but what is a satellite family and how will that be determined?
We hope to receive some clarity on the above soon. It is expected that the provincial government will release draft legislation for the speculation tax this fall.