With the 2018 Speculation and Vacancy Tax declaration deadline of March 31, 2019, approaching, the time to complete your BC Speculation Tax declaration and register for an exemption, if applicable, is coming up.
The BC Speculation Tax declaration can be completed by telephone by calling 1-833-554-2323 or online at https://www.etax.gov.bc.ca/SVT/_/. In order to make the BC Speculation Tax declaration, you will need the Letter ID and Declaration Code from your declaration letter. The Province has stated that all property owners (i.e. legal title holders) should have received their declaration letters.
If you haven’t received your BC Speculation Tax declaration letter, you should contact the Speculation and Vacancy Tax Department at 1-833-554-2323 or email them at firstname.lastname@example.org. Be prepared for delays as this is the department’s busiest time of the year.
Our earlier article entitled, BC Speculation Tax Explained, was released before the Speculation and Vacancy Tax Act (the “SVTA”) received Royal Assent on November 27, 2018. Under the SVTA a new Speculation and Vacancy Tax (the “Speculation Tax”) is applicable for owners of Class 1 residential properties within specified areas of British Columbia if the property has an assessed value greater than $150,000.
Which areas are impacted by the BC Speculation Tax?
The BC Speculation Tax applies to residential properties within the following areas of British Columbia:
- Metro Vancouver (excluding Bowen Island, the Village of Lions Bay, and Electoral Area A, except the part of the electoral area that is the UBC and University Endowment Lands)
- Nanaimo-Lantzville (excluding Protection Island)
- Capital Region District (excluding the Salt Spring Island, the Southern Gulf Islands and Juan de Fuca)
- Kelowna-West Kelowna
SVT Tax Rates
Initially, three different tax rates were proposed for different classes of owners:
- 0.5% for residents of BC
- 1% for other Canadian residents
- 2% for foreign owners and satellite families
What was enacted was more favourable for Canadians and included an introductory rate of 0.5% for all types of owners. For 2019 and subsequent years the BC Speculation Tax rate is as follows:
- 2% for foreign owners and members of a satellite family
- 0.5% for specified BC residents
- 0.5% for specified Canadian citizens and permanent residents
These tax rates are then applied to the July 1 BC Assessment value of the property calendar year immediately prior to the year in which the BC Speculation Tax is due. This means that for 2018, as the declaration is due on March 31, 2019 declaration, that the BC Assessment value of the property as at July 1, 2018, would be used to determine the amount of Speculation Tax, if applicable.
It is interesting to note that the tax rate for specified BC residents and specified Canadian citizens or permanent residents is defined separately in the SVTA. It will be interesting to observe the rates and if there is any divergence over time.
Types of Owners
Foreign owners: Foreign owners are not specifically mentioned or defined in the SVTA. An owner will be a foreign owner if they do not meet the definition of Resident of BC, a specified Canadian citizen, or specified permanent resident of Canada.
Member of a satellite family: While the particular term “satellite family” is not defined in the SVTA, there is a carve-out from being a specified Canadian citizen or specified permanent resident of Canada for an “untaxed worldwide earner.” “Untaxed worldwide earner” means individuals who declare less than 50% of their income and their spouse’s income on Canadian income tax returns.
Specified Canadian citizens and specified permanent residents of Canada: Means individuals who are Canadian citizens or permanent residents of Canada and are not untaxed worldwide earners.
Residents of BC: Residents of BC means individuals who for the applicable year are specified Canadian citizens or specified permanent residents of Canada and are resident in BC at the end of the last day of the calendar year.
Multiple owners: If a residential property has multiple owners, each owner of the property would evaluate their situation and declare an exemption based on their specific circumstances.
Corporations, partnerships and trusts: Determining which tax rate is applicable to corporations, partnerships, and trusts require a look through to the corporate interest holders, partnership interest holders, or beneficial owners. These rules can be complex and not having all of the corporate interest holders, partnership interest holders, or beneficial owners be residents of BC, specified Canadian residents or permanent residents narrow the exemptions available from the BC Speculation Tax.
The manner in which the SVTA is written is such that a residential property will be subject to the BC Speculation Tax if the property is located in one of the specified areas mentioned above, the property’s assessed value is greater than $150,000, and the owner does not complete a BC Speculation Tax declaration to claim an exemption (or does not have an exemption available).
The exemptions are fact specific and require a review of the individual owner’s circumstances. A member of the Manning Elliot ta team can be contacted to help give you guidance on the exemptions available in your particular circumstance. What we would view as the more common exemptions are as follows:
Principal Residence Exemption:
The SVTA defines the term “principal residence” as “...the place in which an individual resides for a longer period in a calendar year than any other place.”
The principal residence exemption requires either an eligible owner or an eligible individual to meet the principal residence criteria and that the eligible owner or eligible individual resident of BC on the end of the last of the calendar year. Unless a specific exemption such as spousal separation applies, spouses cannot claim two different principal residence exemptions.
There are other special circumstances in which the principal residence exemption may apply if the property is a principal residence of a person with disabilities, the owner lives in a residential care facility, the owner did not inhabit the property due to medical absence, or if the owner is a departing resident of BC.
Rental exemptions are available for homes occupied by tenants provided they meet the tenancy criteria. The first criterion to be met is the occupancy requirements. For 2019 and subsequent years the residence must be occupied by tenants for at least six months of the year in increments of one month or longer. For 2018, tenants need to occupy the residence for at least three months of the year in increments of one month or longer. It is interesting to note that only one residence or part thereof must be rented for the entire property to be exempt.
In addition to the occupancy requirements there are different tests for foreign owners or members of a satellite family and Canadian owners. There are different tests for arm’s length tenants and non-arm’s length tenants. A tenant would be considered an arm’s length tenant if they deal with the owner with no special advantage. Non-arm’s length tenants would be family members and could include people who receive preferential treatment from the owner of the property.
- Arm’s length tenant – All Owners
For the exemption to apply, the tenant must be an individual, a written tenancy agreement must be in place and the tenant makes the property their home.
- Non-arm’s length tenant – BC Residents, Canadian citizens and permanent residents who are not members of a satellite family
In this case, non-arm’s length tenants do not require a written tenancy agreement. There is a requirement that the tenant reside in the residence for a longer period in the month than any other place. There is no applicable minimum rental rate referred to in the SVTA.
- Non-arm’s length tenant – Foreign owner and members of a satellite family
In this case, the tenant must be a specified Canadian citizen or permanent resident, be a resident of BC for income tax purposes and have BC income for the calendar year that is equal to or greater than three times the annual fair market value rent for the entire residential property.
Exemptions for Specified Owners
Certain types of owners are exempt from the BC Speculation Tax. These owners include the following:
- Registered charities
- Cooperative associations
- Government and agents of the government
- Indigenous nations
- Government reporting entities
- Government and local public bodies
- Corporations owned by municipalities, regional districts, indigenous nations
- Not-for-profit corporations (other than if the residential property is held as trustee) if the property is used primarily for prescribed purposes
- Bankrupt owner
Exemptions for Certain Types of Property
There is a persistent exemption for Daycares from the BC Speculation Tax. For 2018, there is an exemption for vacant land (i.e. no residence on the property). For 2018 and 2019, there are exemptions for strata accommodation property and for properties with rental restrictions (if the rental restrictions were in place before October 16, 2018).
Exemptions for Real Estate Development
Owners of property that is under construction or substantial renovation may have an available exemption if there is sufficient building activity and reasonable steps are taken without undue delay to develop or renovate the property. The residence on the property would have to be un-occupiable for a period of 90 days during the calendar year due to the building activity for this exemption to apply.
Owners are exempt from the BC Speculation Tax where multi-unit developments when certain conditions are met. This exemption does not apply if any residences on the properties could have been occupied for a period of 180 days during the calendar year.
There is no tax on vacant, newly constructed residences that is part of a residential development as long as the residence is owned by the developer of the property, the property has been offered for sale to the public in the calendar year, and the property has not yet been occupied as a home.
Other BC Speculation Tax Exemptions
- Un-occupiable residences
- Conservation of heritage property
- Testamentary trusts for minors
- Year of death and the year following death
- Year of acquisition (if the purchase attracted PTT)
- There are exemptions for corporations, partnerships and trusts but these are nuanced due to having to look through to the corporate interest holders, partnership interest holders and beneficial owners
If the owner of a residential property does not have a specific exemption (or does not make a declaration to register an exemption) available, the BC Speculation Tax applies a tax credit; available in certain instances:
- If you are a resident of BC (who is not a member of a satellite family), you will be eligible for a maximum tax credit of $2,000 that is applied against the BC Speculation Tax.
- If you are a resident of Canada (who is not a member of a satellite family), you will be eligible for a tax credit based on the amount of income claimed in BC. This tax credit cannot reduce the tax rate below the tax rate for a BC resident.
- If you are a foreign owner or a member of a satellite family you will be eligible for a tax credit equal to 20% of income claimed in BC. This tax credit cannot reduce the tax rate below the tax rate for a BC resident.
If there is no applicable exemption from the BC Speculation Tax payment thereof is due on or before July 2, 2019.
All residential property owners in the specified areas should have received their BC Speculation and Vacancy Tax declaration letters and should complete their declarations. Where there are multiple owners of a home, the declaration must be made by each owner. If the declaration is not made, the applicable BC Speculation Tax will be calculated based on the assessed value of the property.
The SVTA has the following penalties:
- Late payment penalty - equal to 10% of the unpaid tax (starting for the 2020 and subsequent tax years).
- Failure to file penalty - equal to the greater of $100 and $25 per day (to a maximum of $2,500).
- Failure to provide information penalty - equal to the greater of $100 and $25 per day (to a maximum of $2,500) for each failure to provide information.
- Potential gross negligence penalty - equal to an amount that is not less than 100% of any additional taxes owing and that is not more than 100% of any additional taxes owing plus $100,000 for individual or $200,000 for corporations.
- Third party civil penalties are applicable.
Prepare to file your BC Speculation and Vacancy declaration after considering the available exemptions. Remember that the BC Speculation Tax will apply if the declaration is not made and a specific exemption is claimed. Members of the Manning Elliot Tax team can help if you feel you require assistance circumnavigating this new tax.
For more information on the new BC Speculation Tax, please contact a member of the Manning Elliott Tax Team.
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.