The British Columbia Speculation Tax
It’s no secret that Vancouver is one of Canada’s hottest real estate markets, and that other large urban centres in British Columbia have enjoyed similar popularity in investment patterns. A limited supply of housing, however, has caused issues with accessibility. The Provincial Government of British Columbia has attempted to target this imbalance of supply and demand through a range of taxation measures. So, how do these taxes work, and how will they affect me?
The British Columbia Speculation Tax
The B.C. Government introduced the Speculation Tax in February of 2018, to prevent one significant contributor to this housing crisis – that is, the phenomenon of speculation. The tax will be implemented beginning in 2019.
Speculation occurs when purchases are made with the expectation that the item purchased will become more valuable at a future date. Notably, in the real estate market, such investment strategies have the potential to overlap the housing supply of consumers looking to rent or buy for more basic residential purposes.
The aim of the speculation tax is to minimize this overlap in consumption. This tax is aimed at urban centres where the issue is most prevalent. As the BC Government has stated:
The speculation tax works to ensure that British Columbians can afford to live in their own province. It will push speculators out of the housing market, and help turn vacant and underutilized properties back into homes for people who live and work in our province.
As a result, the Speculation Tax targets both foreign and domestic property owners. The Provincial Government has, however, implemented tax credits to assist owners captured by this tax when their properties are rented out.
What is the British Columbia Speculation Tax
The British Columbia Speculation Tax is a tax on those who purchase homes, but do not live in them full time. Residents of BC looking to buy a cottage property, or any second property may have to pay the tax, and for residents, it is 0.5% of the property value. For Canadians who are not British Columbia residents, the tax is 1% of the property value. Non-Canadians will be taxed at a rate of 2% of the property value.
In the case of domestic owners, non-refundable tax credits can be obtained to offset the 0.5% speculation tax where the property is rented for at least 6 months of the year, and the income is reported in B.C.
Somewhat similarly, in the case of foreign owners and satellite families, such credits are available to offset the 2% Speculation Tax where the properties in B.C. are rented and that income is reported in B.C. It is unclear how “satellite families” will be defined.
It is also unclear at this time how selling the property will affect the tax and the availability of tax credits.
The School Tax Increase
The 2018 Provincial Budget introduced an increase in the school tax, which is set to begin in 2019 on properties valued at over $3-million. There will be an increase of 0.2% on properties valued over $3-million, whereas there will be a 0.4% increase on properties worth over $4-million. This increase is based on the value of these properties, rather than gains created by sale.
To enforce these taxes, the B.C. Government will be introducing a publicly accessible registry listing who owns real estate in the province. The registry is meant to boost transparency and minimize opportunities for tax evasion and money laundering. It is expected to go live in the fall.
If you have any questions about these taxes, or your taxes in general, call us today!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.