We have all heard of the saying attributed to Benjamin Franklin,“…in this world nothing can be said to be certain, except death and taxes.” These words can not be truer about the taxation of real property in BC.
In 2018, both provincial and municipal governments took steps which changed the face of BC real property taxation in an effort to increase the availability of affordable housing for local residents. If you are considering buying land in BC, these tax changes may significantly impact your decision. It will be very important to obtain sound advice regarding the real property taxes before you sign on the dotted line.
BC Property Transfer Tax – When registered ownership of property is sold or transferred, the transfer of the property must be registered in the land title office. At the same time, property transfer tax is paid to the Minister of Finance by the buyer of the property. Property transfer tax applies to property where ever located in the province and is generally payable whenever there is a registrable change in ownership of real property. The rate of tax is one per cent of the first $200,000 of property value, two per cent of property value between $200,000 and $2,000,000. In 2018, the tax rate was increased from 3 per cent to 5 per cent for property value over $3,000,000.
Foreign Buyer’s Tax – Foreign entities (which includes foreign nationals and foreign corporations) must pay a foreign buyer’s tax in addition to property transfer tax. When this tax was first introduced, the application of the tax was geographically limited to the Metro Vancouver Regional District, but in 2018 the areas being taxed expanded to the Capital Regional District, the Regional District of Central Okanagan, the Fraser Valley Regional District and the Regional District of Nanaimo. Also, in 2018, the rate of tax was increased by five per cent to 20 per cent of the property value. The tax paid by a foreign entity will be proportionate to its interest in residential property.
Speculation and Vacancy Tax – Subject to specific exemptions, speculation and vacancy tax is paid by owners of property located in the Metro Vancouver Regional District (subject to certain area exclusions), the Capital Regional District (subject to certain area exclusions), Kelowna, West Kelowna, Abbotsford, Chilliwack, Mission and Nanaimo-Lantzville. This tax applies as of January 1, 2018. For Canadian residents and permanent citizen, the tax rate is 0.5 per cent of the property’s assessed value; as of January 1, 2019, for “untaxed worldwide earners” (persons who report less than 50 per cent of their worldwide income combined with the income of their spouse in Canada), the tax rate is two per cent.
The two primary exemptions for the speculation and vacancy tax are the principal residence exemption and the tenanted property exemption. For the principal residence exemption, as of December 31, the property must be owned by an adult resident of BC who occupied the property in the calendar year for a period of time longer than anywhere else. For the tenanted property exemption, the property must be rented for at least three months in 2018 and, for 2019 onward, six months; the rental periods much not be less than 30 days. If you own property in Kelowna which is not your principal residence, the tenanted property exemption may apply if: 1) you rent to an arms-length tenant, enter into a written rental agreement and your tenant makes the property their home; 2) you are not an untaxed worldwide earner, you rent to a non-arm’s-length tenant who has the right to occupy the property and the tenant lived in the property longer than anywhere else during the month; or 3) you are an untaxed worldwide earner, you rent to a non-arm’s length tenant and the tenant has a certain level of income subject to BC income tax.
Vancouver Vacant Home Tax – Owners of property in Vancouver must pay vacant home tax if the property is “unoccupied property”. This empty homes’ tax was introduced in 2018. The tax rate is one per cent of the assessed value of the property. This tax does not apply to a principal residence. A rental property that is rented for at least 30 days in a row and is not unoccupied for more than 180 days in a year may be exempted from the tax.
The details of the taxes described above are set out in a very general way. There may be additional requirements to qualify for an exemption that are not fully set out as well as other exemptions which apply to a particular situation beyond those described in this column. In addition, when considering estate planning or business transactions, it will be important to keep the impact of these taxes in mind. See your professional advisor for additional information.