In 2018, British Columbia’s Speculation and Vacancy Tax (the “Speculation Tax”) came into effect. The Speculation Tax was meant to be a tool to increase the supply of housing and prevent speculative investors from purchasing housing in BC and leaving properties vacant. Since its implementation, the Speculation Tax has garnered much criticism and has significant consequences on many owners, especially those with vacation properties.
Locations
In 2018, the Speculation Tax was applied only to select communities in the province, including Kelowna, West Kelowna, many parts of Vancouver Island, and the greater Vancouver region.
Since the Speculation Tax was first implemented, it has expanded to additional communities. The latest expansion of the tax was announced in November 2023 and expanded the tax to many Okanagan communities along with other previously excluded communities, including:
- Vernon, Coldstream;
- Penticton, Summerland;
- Lake Country, Peachland;
- Courtney, Comox;
- Parksville, Qualicum Beach;
- Salmon Arm; and
- Kamloops.
How the Tax Works
The Speculation Tax applies to all owners registered on the title of a property in the specified areas in BC. Each year, the owner or owners of a property are required to make a speculation and vacancy tax declaration as to whether tax is owing, or an exemption applies. Each year, the BC Government sends out speculation and vacancy declaration letters to owners based on the mailing address on file with the BC Assessment authority. The declaration letter includes a code that owners can use to make their declaration online.
Tax Rate
The amount of Speculation Tax payable will depend on the characteristics of an owner. Generally, for individual owners, the key factor that determines the amount of tax payable is whether an individual is a BC resident, a Canadian citizen, or a permanent resident of Canada.
BC Residents, Canadian Citizens, and Permanent Residents
Owners who are residents of BC who don’t qualify for an exemption will be subjected to a 0.5% tax on the assessed value of their property proportionate to their ownership interest. Put another way, if a couple both own a home with an assessed value of one million dollars, they will each be liable for 0.5% of the tax on the value of their home unless they qualify for and claim a Speculation Tax exemption. This translates to each owner owing twenty-five hundred dollars in Speculation Tax or five thousand dollars yearly.
The same rate of tax will apply to most Canadian citizens and permanent residents of Canada. This means that Albertans and other Canadians who own vacation properties in British Columbia will generally be taxed at the same rate as residents of BC.
There is one crucial exception for Canadian citizens and permanent residents of Canada. To qualify for the lowest tax rate, the Speculation and Vacancy Tax Act requires that Canadian citizens and permanent residents of Canada (other than BC Residents) must make more income in Canada than in any other country. This means that a Canadian citizen living abroad and earning most of their income outside of Canada will be subject to a higher rate of Speculation Tax and face more stringent exemption requirements.
Speculation Tax for Non-Canadians and Foreign Income Owners
The Speculation and Vacancy Tax rate for non-Canadians and Canadian and permanent residents who earn their income abroad is vastly higher: set at 2% of the property’s value. Using a slight variation to the last example, if a Canadian couple who earn the majority of their income in Washington state, owns a vacation home in BC worth one million dollars, and does not qualify for an exemption from the Speculation Tax, they will be subject to the highest rate of tax. In this case, they would each be liable for ten thousand dollars of Speculation Tax or twenty thousand dollars in total.
Moreover, non-Canadian and foreign income-earning Canadians who wish to claim certain exemptions from the Speculation Tax will have more stringent requirements imposed on them that can be difficult to satisfy.
Exemptions
There are several exemptions to the Speculation Tax, each with specific requirements that will depend on each owner’s circumstances. Many, if not most, BC residents only own one home where they live on a day-to-day basis (their principal residence), which is exempt from the Speculation Tax. However, Canadians who primarily live outside of BC or abroad and own vacation property cannot rely on the principal residence exemption. Indeed, there are many instances where those owners can not satisfy the requirements for any exemption and are surprised to learn that they have significant Speculation Tax liabilities. Other times, owners of vacation properties may not even receive their Speculation Tax declaration letters and only learn that they have outstanding Speculation Tax liabilities when they discover the BC government has registered a lien against their property.
How Pushor Mitchell Can Help
The tax team at Pushor Mitchell has experience advising clients about the various requirements for different Speculation Tax exemptions, assisting in removing Speculation Tax liens, appealing Speculation Tax assessments, and negotiating with the BC Ministry of Finance. In some cases, changes in how you use your vacation property may be enough to qualify for an exemption. In other cases, more sophisticated estate plans may need to be implemented to minimize the Speculation Tax owners pay. In either case, the Pushor Mitchell tax team can assist you in implementing your specific goals for your vacation property.
If you would like to learn more about the Speculation and Vacancy Tax and how it may affect you or your BC vacation home, reach out to Kyle Ramsey at [email protected] or give him a call at 250-869-1259.
