On February 22, 2018, the B.C. budget introduced its new proposed speculation tax which was brought into law on November 27, 2018 under the Speculation and Vacancy Tax Act, SBC 2018 c.46. The B.C. speculation tax targets owners of residential properties in parts of B.C. whose properties are vacant. Homeowners that own a vacant property in the affected municipalities (see below) will be subject to the speculation tax unless they are eligible for an exemption. The speculation and vacancy tax is an individual tax not a property tax.
Below we highlight a few of the important features of the speculation tax.
The persons subject to the speculation tax include the owners of vacant properties in the municipalities of Kelowna, West Kelowna, Metro Vancouver, Abbotsford, Mission, Chilliwack, Lantzville, Capital and Nanaimo districts. For further details, please visit: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/taxable-regions
Each residential owner of a property located in a taxable region (see above) as of December 31 of a calendar year must submit a declaration on or before March 31 each year with respect to the prior calendar year. For example, on or before March 31, 2019, an affected owner must make his, her or its declaration with respect to January 1, 2018 – December 31, 2018. Please note that each co-owner (Ex. spouses who own a property jointly) must make their own separate declaration.
The government of British Columbia will send each affected owner a speculation and vacancy tax declaration letter in the mail by mid-February.
Declarations can be done online or over the phone.
Please note that each affected owner will need the following information to complete their declaration:
- Declaration code (found in the owner’s annual speculation and vacancy tax declaration letter);
- Letter code (found in the owner’s annual speculation and vacancy tax declaration letter); and
- The owner’s Social Insurance Number (if individual); or
- The owner’s Incorporation Number (if corporation).
A third party may make a declaration on behalf of an affected owner by first being authorized a representative by completing and filing the “Authorization or Cancellation of a Representative” form (https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/forms) or over the phone at the time that the declaration is being made.
The tax payable is calculated as follows: tax payable = tax rate x (owner’s interest x assessed value).
Please note that the rate of tax payable depends on the owner’s residency and whether the owner is a Canadian citizen, permanent resident of Canada or satellite family. For example:
1. BC Resident: 0.5% if the owner is:
a. an individual who is a resident of British Columbia as of December 31;
b. a corporation with all of its shareholders being residents of British Columbia as of December 31;
c. a partnership with all of its partners being residents of British Columbia as of December 31;
d. a trustee if all of the beneficial owners are residents of British Columbia as of December 31.
2. Canadian: 0.5% if the owner is:
a. an individual who is a specified Canadian citizen or specified permanent resident of Canada as of December 31;
b. a corporation with all of its shareholders being specified Canadian citizens or specified permanent residents of Canada as of December 31;
c. a partnership with all of its partners being specified Canadian citizens or specified permanent residents of Canada as of December 31;
d. a trustee if all of the beneficial owners are specified Canadian citizens or specified permanent residents of Canada as of December 31.
Note, “specified Canadian citizen” means, in relation to a calendar year, means an individual who is a Canadian citizen other than a Canadian citizen who is, for the calendar year, an untaxed worldwide earner and “specified permanent resident of Canada”, means, in relation to a calendar year, means an individual who is a permanent resident of Canada other than a permanent resident of Canada who is, for the calendar year, an untaxed worldwide earner.
3. Other: 2.0% if the owner:
a. Does not fit into a category noted above (Ex. foreign owners or satellite families); or
b. Is a corporation with no corporate interest holders.
Note, “satellite family” means people who declare less than 50% of their total combined household income for the year on Canadian income tax returns may pay tax at the highest rate and may not be entitled to all exemptions. Please note that this can apply to residents of British Columbia and/or Canada.
Please note that there may also be tax credits available for owners who are residents of British Columbia as of December 31 in certain circumstances to help offset the tax paid by such residents. These tax credits are not available for owners who are residents of other provinces in Canada.
It is estimated that over 99% of British Columbians are exempt from the speculation and vacancy tax. This is because the majority of the residential properties located in British Columbia do not fall within the taxable regions (see above). In addition, certain exemptions are available. There are generally three categories of exemptions available: individual, land under development and corporations/trustees/partners.
1. Individual: These exemptions relate to the circumstances of the owner(s) and/or property. For example:
a. Principal residence – Note, spouses cannot claim two different principal residences unless they live apart for work or medical reasons or because of a separation or divorce. There are also exemptions available for owners who are not currently residing in their principal residence for certain reasons (work, medical, disability, etc.).
b. Occupied by tenant – Note, the tenancy must be with a renter, family member or other non-arm’s-length person for at least 6 months during the calendar year in increments of 1 month or more with a written rental/tenancy agreement in place.
c. Recently purchased or inherited the property – Note, this only applies for the calendar year in which the property was purchased and is subject to certain other restrictions.
d. Recent death of owner – Note, this only applies for the year of death and the following calendar year. This also applies to a surviving spouse and the deceased owner’s personal representative.
e. Rental restrictions – Note, this only applies for 2019 and applies to properties that have restrictions on rentals within the requirements of the legislation.
Value under $150,000.
For a complete list of these exemptions and the specific requirements, please visit: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/exemptions-speculation-and-vacancy-tax/individuals
2. Land Under Development: These exemptions relate to the development or renovation of the property. For example, a residence that cannot be occupied for a period of 90+ days in the calendar year due to construction or renovation or if there is not yet a residence on the property (and accordingly does not attract the tax at that stage) due to the stage of building activity, as long as reasonable steps are being taken without undue delay to develop or renovate the property.
For a complete list of these exemptions and the specific requirements, please visit: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/exemptions-speculation-and-vacancy-tax/land-under-development
3. Corporations/Trustees/Partners: For a complete list of these exemptions and the specific requirements, please visit: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/exemptions-speculation-and-vacancy-tax/corporations-trustees-partners
LIABILITY AND PENALTIES:
The speculation and vacancy tax is a personal tax (similar to income tax).
Penalties may apply with respect to, among other things, the following:
- Late payment: Commencing in 2020, the government of British Columbia may impose a penalty equal to 10% of the unpaid tax.
- Late declaration: The greater of $100 and $25 for each day to a maximum of $2,500.
Generally, if there are two or more registered owners of a property, the tax liability is joint and several. This means that each owner is fully responsible for the tax and/or interest payable by any other co-owner, if any. Accordingly, the government of British Columbia may take action to collect the share of the “defaulting owner” from the other owner (if any) and it is the other owner’s responsibility to obtain reimbursement from the defaulting owner.
The government office dealing with the speculation and vacancy tax can be reached via telephone from 8:00am to 8:00pm, 7 days a week at 1 (833) 554-2323 and 1 (604) 660-2421 or via email at firstname.lastname@example.org.
Author: Danielle (Dani) Brito
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of estate planning and estate administration at the following:Jennette Vopicka: email@example.com Danielle (Dani) Brito: firstname.lastname@example.org Jane Otterstrom: email@example.com