Tax Insights: British Columbia implements new speculation and vacancy tax

December 21, 2018

Issue 2018-49

In brief

On November 27, 2018, British Columbia enacted legislation to implement the speculation and vacancy tax (SVT). Starting 2018, residential property owners in certain urban centres of British Columbia will be liable for this new tax. Although exemptions are available, all residential property owners in these urban centres (even those who qualify for an exemption) must register for the SVT and make an annual declaration.

In detail

Who will be liable for the tax?

Starting 2018, the SVT will be imposed annually on owners of residential properties, located wholly or partially within certain British Columbian municipalities at varying rates, depending on:

  • the owner’s tax residency, and 
  • whether the owner is a:
    – prescribed Canadian citizen
    – prescribed permanent resident, or
    – member of a satellite family1

The SVT is levied on registered owners who own properties in the specified areas on December 31 of each calendar year.

Despite the description of the tax, it will apply regardless of whether a property is acquired with a speculative investment intention, or its occupancy status.

Foreign owners and satellite families

A foreign owner is an individual who is not a specified Canadian citizen or permanent resident of Canada.

The term “satellite family” refers to an individual or spousal unit (even if they are Canadian citizens or permanent residents of Canada) if the majority of their total worldwide income for the year is not reported on a Canadian personal income tax return.

Where does the tax apply?

The areas subject to the SVT include municipalities within the Capital Regional District and Metro Vancouver (with some exclusions), the districts of Mission and Lantzville and the cities of Abbotsford, Chilliwack, Kelowna, West Kelowna and Nanaimo.

The taxable region does not include reserve and treaty lands, those of a self governing Indigenous Nation, or islands inaccessible by bridge.

How will the tax be calculated?

The tax rate, as a percentage of the property’s assessed value (on July 1), will be:

  • for 2018, 0.5%
  • after 2018, for:
    – foreign investors and satellite families, 2%
    – British Columbians and other Canadian citizens or permanent residents who are not members of a satellite family, 0.5%

Exemptions

Exemptions from the SVT are available for certain owners, types of property and circumstances. Exemptions include property that is:

  • owned by a registered charity, municipality, government, indigenous nation or corporation owned by these bodies
  • vested with a trustee in bankruptcy
  • used as a licensed daycare, being developed or renovated or damaged, destroyed or otherwise uninhabitable
  • vacant land
  • the owner’s principal residence or the principal residence of a person with a disability
  • a rental property occupied by tenants (different rules apply for arm’s length and non-arm’s length rentals; does not generally apply to foreign owners and satellite families)
  • acquired in the year and the purchase attracts property transfer tax (PTT), or is exempt from PTT,

or the owner is:

  • a British Columbian who is absent for up to two years from their principal residence for medical reasons (medical certification required) or because they reside in a residential care facility
  • a spouse resident in British Columbia, but the spouses live apart due to work or medical reasons (certain conditions apply), or due to a relationship breakdown
  • deceased in the year (all owners are exempt in the year and the following year)

Example scenarios

The following examples clarify whether the SVT applies in some common scenarios.

Scenario 1

Person A and Person B are spouses. Person A is a Canadian citizen and is resident in British Columbia. Person B is a Canadian citizen, but does not regularly reside in British Columbia, and is considered a non-resident for Canadian income tax purposes.

Person A owns a residential property in Metro Vancouver, but earns a minimal amount of income each year. The majority of the family’s income is earned by Person B, but all of the income is earned outside Canada and is not reported on a Canadian personal income tax return.

For purposes of the SVT, Person A and Person B are considered a “satellite family,” because the majority of the family’s income is earned outside Canada and is not reported on a Canadian personal income tax return. Therefore, SVT should apply to the residential property in Vancouver, at a rate of 0.5% for 2018 and 2% thereafter.

Scenario 2

Person A and Person B are spouses. Both are resident in British Columbia by virtue of a work permit and earn employment income in the province. The spouses are considered residents for Canadian income tax purposes and file Canadian personal income tax returns accordingly. They jointly own a residential property located in Metro Vancouver.

Despite being considered resident for Canadian income tax purposes, Person A and Person B do not qualify for the principal residence exemption, because they are not Canadian citizens or permanent residents of Canada. Therefore SVT should apply to the residential property in Vancouver, at the rate of 0.5% in 2018 and 2% thereafter.

Paying the tax

All residential property owners in the areas subject to the SVT must:

  • make a declaration (i.e. register and claim an exemption) online by March 31 of the following year, and 
  • if no exemption is available, pay any tax owing by July 2 of the following year

For 2018, the declaration must be made by March 31, 2019, and the SVT must be paid by July 2, 2019.

If a property has multiple owners, each owner must complete a declaration, even if they are married or related to another owner of the property. An owner with multiple properties must complete a separate declaration for each property.

Failure to file a declaration for a calendar year will result in an assessment at the 2% tax rate for the taxpayer, regardless of residency status or exemption eligibility.

Tax credits

Canadian citizens or permanent residents who are resident in British Columbia and not members of a satellite family, will be eligible for a tax credit of up to $2,000 on a secondary property. This ensures that they do not pay tax on a second home (i.e. vacation property) valued up to $400,000. The credit is limited to $2,000 per owner and $2,000 per property (if multiple owners) per year and unused credits cannot be carried forward or transferred to a spouse.

Foreign owners and satellite families can claim a tax credit equal to 20% of their British Columbia income to reduce the 2% SVT owing (for 2018, a 5% tax credit is available to reduce the 0.5% SVT owing). The tax credit cannot reduce the British Columbia tax payable to below that of an equivalent British Columbia resident (i.e. zero on a principal residence or 0.5% on other properties). Unused credits can be carried forward for up to two years or transferred to a spouse.

Canadian owners not resident in British Columbia will be eligible for a 5% tax credit based on their British Columbia income to reduce the 0.5% SVT owing. Unused British Columbia income can be carried forward up to two years or transferred to a spouse.

Why was the tax introduced?

The SVT makes owning a home in the taxable areas more expensive for owners that reside outside British Columbia, or hold real estate for speculative purposes. The British Columbia government’s intention is for the SVT to primarily address the housing crisis by discouraging speculation and vacancies. Given that the SVT will apply in addition to British Columbia’s general PTT and additional PTT on foreign buyers, it is also another move by the government to make home ownership more affordable for the province’s residents.

The takeaway

Owners of residential properties in British Columbia that are subject to the SVT should ensure that they complete the declaration and claim any exemptions by March 31, 2019. If they are not eligible for an exemption, they should determine which category they fall into for payment of the tax by the July 2, 2019 deadline.

 

1. The legislation refers to these individuals as “untaxed worldwide earners.”

Contact us

William Holms

Western Canada Tax Leader, PwC Canada

Tel: +1 604 806 7052

Ken Ghag

Senior manager, PwC Canada

Tel: +1 604 806 7208

Jasen Kwong

Partner, PwC Canada

Tel: +1 604 806 7025

Zaheer Jamal

Senior Manager, PwC Canada

Tel: +1 604 806 7221

Follow PwC Canada