Speculation. When We Don't Know What We Don't Know.

Lots of chatter flying about with regard to the BC Government announcement about the "SPECULATION TAX"  and as diligent REALTORS® we are actively looking to learn as much as we can to best advise our clients. 

Definition of 'Speculation'

Speculation is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable at a future date. In finance, speculation is also the practice of engaging in risky financial transactions in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument—rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, dividends, or interest. Wikipedia

Here is what we have found so far about this impending tax... (My comments in Italics)

In Budget 2018, the BC government announced that it would be introducing legislation  (not active yet) to impose an annual speculation tax. The tax will be effective for the 2018 tax year.

(According to the Government Release: Information Sheet 2018-001) The majority of BC homeowners will be exempt from this tax.

The speculation tax will target foreign and domestic speculators in BC. These are homeowners who have removed their units from BC’s long-term housing stock – meaning they are not owner-occupied or a qualifying long-term rental property.

Satellite families - households with high worldwide income that pay little income tax in BC - will also be captured by the tax.

The speculation tax will initially apply to the Metro Vancouver, Fraser Valley, Capital and Nanaimo Regional Districts, and in the municipalities of Kelowna and West Kelowna. (So not in the North Okanagan or Shuswap - however the impact of this tax in the Central Okanagan my have a direct ripple impact on properties to the North of Kelowna in Vernon, Coldstream and beyond.)

(Currently it is proposed that ) In 2018, the tax rate will be $5 per $1,000 of assessed value. In 2019, the rate will increase to $20 per $1,000 of assessed value.

(Given that the average overall sale price for residential property sales last week in the Central Okanagan Zone was $605,435. - slightly less than the average apartment in Vancouver - owners would expect on average to pay an additional $3027.17 this year, and then if values do not change next year $12,108.)

Exemptions

Income Tax Credit 

(They say that ) The majority of BC homeowners will be exempt from this tax.

Exemptions will be available for:
 Principal residences (excluding satellite families) (I have seen multiple references to the term satellite families but  found no formal definition yet)

 Qualifying long-term rental properties (again - I've not seen what the criteria is to qualify a long term rental)
 Certain special cases (filed under the heading of "Things that make me go hmmm... and be sure to follow up on...)

(Apparently) A non-refundable income tax credit will help offset the tax for BC residents. This will leave the bulk of the tax levied on vacant and short-term rental properties owned by individuals who do not live in BC, as well as satellite families. ( no information on this either)

Frequently Asked Questions
Q. When is the new speculation tax effective?

A. The speculation tax will be effective for the 2018 tax year. Homeowners will receive their first tax notice in the fall of 2018.

Q. Who is going to pay the tax?

A. The speculation tax will target foreign and domestic speculators in BC. These are homeowners who have removed their units from BC’s long-term housing stock – meaning they are not owner-occupied or a qualifying long-term rental property. A corresponding income tax credit will help offset the tax for BC residents. This will leave the bulk of the tax levied on vacant and short-term rental properties owned by individuals who do not live in BC, as well as satellite families.

Q. What is the definition of a qualifying long-term rental property?

A. These details, as well as information on how to apply for an exemption/income tax credit, will be provided in the coming months, prior to the implementation of the tax.

Q. Will satellite families have to pay the tax?

A. Yes, satellite families will be required to pay the tax.

We will be collecting information from home owners to identify families with high worldwide income. These families will not be eligible for the up-front principal residence exemption. To the extent that they pay tax in BC, they will still be eligible to claim the income tax credit.

Q. I live outside the province and own a residential property within the area the tax applies to. Will I have to pay the tax?

A. If the property is not a qualifying long-term rental, you will be required to pay the tax. (Can we infer from this that it will not matter if the home is Air BnB or VRBO as those are short term rentals? - It would seem so - However - I imagine a cross-referencing data scraper that trolls those sites to see / prove income generation will eventually be a reality. It is a tax loophole too big not to close.)

Q. What about British Columbians with two homes? A resident who lives in Vancouver and owns a vacation property in Kelowna?

A. A non-refundable income tax credit will help offset the tax for BC residents. This will leave the bulk of the tax levied on vacant and short-term rental properties owned by individuals who do not live in BC, as well as satellite families. (waiting for more details and evidence to prove this statement holds in practice.)

Q. I think I have a property that might be subject to the tax. How can I avoid the tax?

A. Principal residences and homes rented out long-term will be exempt from the tax.

A non-refundable income tax credit will help offset the tax for BC residents. This will leave the bulk of the tax levied on vacant and short-term rental properties owned by individuals who do not live in BC, as well as satellite families.

Q. How will the tax be administered? How can I apply for an exemption/income tax credit?

A. The speculation tax will be administered by the Province, outside of the normal property tax system and property tax cycle.

The Province will issue notices by mail that will direct residential property owners to a BC Government website that will contain an electronic tax form (paper and phone options will also be available). The notices will contain information on the various exemptions.

One of the goals in designing the tax and its administration will be minimizing the compliance burden for the vast majority of homeowners who will be claiming an up-front exemption and reducing the number of notices that need to be sent in future years.

Q. I have read the FAQs but need further details to know if I have to pay the tax? Where can I get more information?

A. These details, as well as information on how to apply for an exemption/income tax credit, will be provided in the coming months, prior to the implementation of the tax. (in other words... Go to Helen Waite... along with the rest of us)

Click on the following link should you care to dig further into Provincial Government taxes.