In 2018, the Government of BC was under pressure to respond to the skyrocketing housing prices in British Columbia. Many residents found the prospect of home ownership slipping away from them as the average real estate prices increases far outstripped wage growth. In response, the government introduced the Speculation and Vacancy Tax Act (the “Speculation Tax”), with the intention that it would “turn empty homes into good housing for people who live and work in BC”. The basic idea was that the Speculation Tax would reduce profits made by those trading in real estate, which would cool the market and create a new revenue stream for the government to apply to more affordable housing initiatives. The execution has fallen somewhat short of the strategy, and the Speculation Tax has created both loopholes and (apparently) unintended consequences.
The purpose of this article is to provide some background information as to some current issues in the application of the Speculation Tax. Please note that legislation is always subject to change, and that each case depends on its own specific facts. Our real estate lawyers remain available for phone & video consultations for those facing issue with the Speculation Tax, or any other real estate law issue. Contact us now!
There are legitimate ways to avoid paying the Speculation Tax. The Speculation Tax does not currently catch quick property flips done the same year, for this tax does not apply in the year a property is purchased. If you buy a home in Oak Bay on February 1 and sell it for a profit on September 30 the same year, you are not subject to the Speculation Tax. Alternatively, if you buy a home in Saanich on February 1, 2019 and sell it for a profit on November 30 of 2020 you are exempt from the Speculation Tax in 2019 and it would not be subject to the Speculation Tax in 2020.
Properties that are accessible only by air or water and which are not part of designated areas are not subject to the Speculation Tax, nor are reserve lands, treaty lands and lands of self-governing Indigenous Nations. The tax is not paid on principal residences lived in by owners or are rented out to tenants. There are limited exemptions for some members of the Canadian military and their spouses. There is a temporary exemption until the end of 2021 for strata properties subject to rental restrictions if the property was purchased before October 16, 2018.
Claiming Your Exemption
In order to avoid paying the Speculation Tax, each owner on title must file a Declaration with the Province of BC every year. The declaration form is mailed every February to people listed as registered owners as at December 31 and is due by March 31. Be sure that your address is up to date and that you ensure that you get your mail well before the due date for filing. You are liable to pay this tax if you miss filing your Declaration in time.
Places Where this Tax Applies
Currently, the designated areas where the Speculation Tax applies are:
- The Capital Regional District (includes Victoria, Saanich, Langford, Oak Bay, Esquimalt, Colwood, Central Saanich, Sooke, Sidney, North Saanich, View Royal, Metchosin, and Highlands but excludes the Juan de Fuca Electoral Area, Salt Spring Island and the Southern Gulf Islands).
- The Metro Vancouver Regional District (other than the Village of Lions Bay and Bowen Island).
- The University of BC and University Endowment Lands.
- The City of Abbotsford.
- The City of Chilliwack.
- The City of Kelowna and the City of West Kelowna.
- The City of Nanaimo.
- The District of Lantzville.
- The District of Mission.
When You May Need Help From a Lawyer
Complications may arise in three common areas: tenancies, co-ownership, and satellite family arrangements.
To qualify for the rental property exemption, the rental property must be rented to tenants for at least six months in the calendar year. Short-term rentals of less than one month do not count towards the calculation of the six-month total.
The tax differentiates between an arm’s length tenant and a non-arm’s length tenant. To qualify as an arm’s length transaction, there must be a written tenancy agreement and the tenant must live on the property.
Non-arm’s length tenants (such as friends and family) do not require written tenancy agreements, but they must reside in the residence for more days in the same month than any other place. Foreign owners with non-arm’s length tenants have more restrictions in being considered tenants. This tax appears to have been written to catch non-Canadian families who may purchase a home in BC for their child who attends university, or the classic “satellite” family where the wage earner is a non-Canadian who lives abroad while his or her family lives in a home in BC.
In order to qualify for an exemption for a foreign-owned property with a non-arm’s length tenant, the tenant must:
- be a Canadian citizen or permanent resident,
- be a resident of BC for income tax purposes at the end of the last day of the calendar year,
- not be a member of a satellite family, and
- have a B.C. income for the calendar year that is equal to or greater than three times the annual fair market rent for the entire residential property.
Owners of property, their spouses, and minor children may not be tenants.
The Speculation Tax applies when two family members own a property jointly, but only one lives there. The family member who lives elsewhere will have to pay tax on their half of the assessed value of the property. The occupant family member is deemed by law to be an owner of the property and is not eligible to be considered a tenant.
Sometimes owners wish to add their adult children to title as joint tenants for estate planning purposes, or a young adult requires a parent to be a co-owner (of as little as one percent of the property) so that they may be able to qualify for a mortgage. All owners must complete the Declaration and the Speculation Tax will be payable by those property owners based on the assessed value of their ownership stake.
Families are considered satellite families when the majority of the combined spousal income of registered owners is earned outside of Canada and is not reported on a Canadian tax return. For example, if a husband works and pay taxes in the United States, while his wife lives with their children in British Columbia, Speculation Tax will be payable unless the couple have other income reported on a Canadian tax return which is greater than the income reported in the United States.
How Much Do I Have to Pay?
Starting in 2019, the rate of the tax is 0.5% for Canadian Citizens and 2% for foreign owners. The chart below may be of some help:
|Type of Owner||Rate||Tax Credits|
|Foreign Owners and “Satellite Families”||2 %||20% credit based on B.C. Income (subject to maximum credit amount)|
|B.C. Residents||0.5%||Maximum credit of $2,000 on a secondary property|
|Other Canadian Citizens and Permanent Residents||0.5%||Credit based on B.C. Income (subject to maximum credit amount)|
A tax credit of up to $2,000 is available to BC residents, which effectively erases the tax that is assessed on properties valued up to $400,000 as long as they are Canadian citizens, permanent residents, or confirmed BC nominees.
Speculation Tax Summary
Tax laws are subject to interpretation and court challenges. If you need assistance, our firm is pleased to be of service. Please do not rely upon this brief note as legal advice, as everyone’s situation is unique and needs independent assessment. Contact us now!
By Michelle Siedel
Michelle Seidel is a solicitor with 20 years of legal experience. She joined Crease Harman LLP in 2019, after moving to Victoria, BC. Prior to joining Crease Harman, Michelle worked as general counsel for a technology company and she also operated her own firm in Vancouver with a focus on real estate, wills, and corporate law. She is passionate about good estate planning and helping businesses to succeed.