Tax Alert - British Columbia Announces Significant Changes to the Proposed Speculation Tax

April 12, 2018

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On March 26, 2018, the B.C. government announced significant changes to the proposed speculation tax that was announced in its February 20, 2018 budget. Since the original announcement, many people have expressed concern over the new speculation tax, especially regarding how it will affect B.C. residents and other Canadians who own B.C. vacation properties.

The B.C. government has responded to the criticisms with the release of revised proposals. These new proposals reduce the number of geographic areas affect by the proposed new tax and introduce a new rate system that distinguishes between B.C. residents, out-of-province Canadians and foreign investors.

In addition, more detail is provided regarding proposed exemptions and the proposed tax credit. The stated purpose of the speculation tax is to push speculators out of the housing market, and to help turn vacant and underutilized properties into homes for people who live and work in B.C. It is not entirely clear how the new speculation tax, exemptions and tax credits discussed below will be implemented as legislation has not yet been released.

Refined Geographic Area

The B.C. government has refined the geographic area where the new tax applies to focus mainly on urban centres and to exclude rural areas where vacation homes are common. The new tax will apply to the Metro Vancouver Regional District (excluding Bowen Island and Electoral Area A, except the part of the electoral area that is the UBC and University Endowment Lands), the Capital Regional District (excluding the Gulf Islands and Juan de Fuca), Kelowna-West Kelowna, Nanaimo-Lantzville (excluding Protection Island), Abbotsford, Chilliwack, and Mission. Most islands are excluded. For a map of the areas that are affected by the new tax, refer to the B.C. government website.

New Rate System

In 2018, the tax rate for all properties subject to the proposed tax is 0.5 percent on the property value. Beginning in 2019, the tax rates will continue to be 0.5 percent for B.C. residents who are Canadian citizens or permanent residents (and not members of a satellite family). The rate for out-of-province Canadian residents who are Canadian citizens or permanent residents will be 1 percent, and the rate for foreign investors, including satellite families, will be 2 percent. The government describes satellite families as households with high worldwide income but who pay little income tax in B.C.

Exemptions and Tax Credit for B.C. Residents

The B.C. government provided details on the exemptions and tax credits that will be available for B.C. residents. Primary residences of B.C. residents are exempt from the new tax. In addition, properties that qualify as long-term rentals are also exempt. Specifically, in order to qualify for the exemption in 2018, properties must be rented out for at least three months. Beginning in 2019, properties will need to be rented out for at least six months, in increments of 30 days or more, to qualify for the exemption. There will be exemptions to accommodate special circumstances, such as:

  • The owner or tenant is undergoing medical care or residing in a hospital, long-term care or a supportive-care facility;
  • The owner or tenant is temporarily absent for work purposes; and
  • The registered owner is deceased and the estate is in the process of being administered.
Generally, B.C. residents subject to the proposed speculation tax will be eligible for a tax credit. This credit will be immediately applied against the speculation tax and will offset a total of $2,000 in speculation tax payable, the speculation tax on a property with a value of $400,000. For higher value vacant properties, this credit will ensure that the new speculation tax will only apply on the residential value above $400,000. For homeowners with multiple properties subject to the new tax, the tax credit will only be applied to reduce the speculation tax on one property.

 

Relief for Canadians who reside outside B.C., Non-residents, and Satellite Families

Canadians who keep their primary residence in another province can avoid the tax by renting out their B.C. property for six months of the year. In addition, they will be able to offset a portion of the speculation tax with a non-refundable tax credit if they report income in B.C.

Foreign owners and satellite families can avoid the tax by renting their property. They will be able to offset a portion of the speculation tax with a non-refundable tax credit if they report income in B.C.

 

Other Budget Measures Pertaining to Real Estate

In the February budget, the B.C. government also made changes to certain measures aimed at cooling the real estate market in the province. These other measures, listed below, were not impacted by the announcements made on March 26, 2018:
  • Increasing the foreign buyers’ tax from 15 percent to 20 percent of the fair market value of affected residential properties as of the purchase date;
  • Expanding the geographic areas in which the foreign buyer’s tax applies to include the Capital Regional District, the Regional District of Central Okanagan, the Fraser Valley Regional District, and the Regional District of Nanaimo;
  • Increasing the property transfer tax rates on residential properties valued at more than $3 million by introducing an additional tax of 2 percent on residential properties valued at more than $3 million. This is in addition to the existing 3 percent rate on residential property values over $2 million. These two rates combine to make property transfer taxes of 5 percent on the value of residential properties over $3 million;
  • Increasing the school tax rate on properties valued at $3 million or more by applying a tax rate of 0.2 percent on the portion of residential assessed value over $3 million but less than $4 million, and applying a tax rate of 0.4 percent on the residential assessed value over $4 million;
  • Improving information about ownership by requiring information about beneficial ownership as well as legal title to be reported on the Property Tax Transfer form, requiring corporations in B.C. to hold accurate and up-to-date information on beneficial owners in their corporation records, establishing a registry of beneficial ownership of land in B.C., and building a registry of pre-sale condominium assignments.


BDO can help

While the cost of owning high-value residential real estate in parts of B.C. has been mitigated for some B.C. residents, the proposed new speculation tax will be costly for those residents of the rest of Canada who own a B.C. vacation property in a high-value geographic location and who don’t rent it out. Foreign speculators and satellite families will face a greater tax cost. Please contact one of our trusted Tax advisors at BDO Canada to gain more information on how the new B.C. real estate proposals may affect you.

Dave Walsh
Partner, Tax Service Line Leader

Daryl Maduke
Partner, West Group Tax Service Line Leader

Rachel Gervais
Partner, GTA Group Tax Service Line Leader

Peter Routly
Partner, Central Group Tax Service Line Leader

Jennifer Dunn
Partner, East Group Tax Service Line Leader

Learn more about BDO's Canadian Tax Services today.


The information in this publication is current as of April 12, 2018.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.