BC government unveils major changes to new Speculation Tax on housing

KENNETH CHAN (DAILY HIVE) - The BC NDP government has announced major changes to how the new Speculation Tax (ST) on housing will be implemented.

During a teleconference with media this afternoon, BC Finance Minister Carole James said 99% of British Columbians will not pay the ST on the value of their residential property. This ST goes into effect during the 2018 tax year.

“British Columbians who own their own homes do not pay the speculation tax. British Columbians who are landlords do not pay the speculation tax. British Columbians with cottages and cabins in rural areas do not pay the speculation tax,” said James.

“The goal is to ensure speculators will not be able to treat our housing market as a stock market at the cost of British Columbians and also to provide incentives for people who own multiple properties to rent them out so that they become a part of the housing stock and community.”
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Geographical areas the ST will be applied
James “refined” the geographical zones the ST will go into effect, with the new tax now restricted to the following five urban centres:

• Metro Vancouver (excluding Bowen Island)
• The Capital Region District / Greater Victoria (excluding the Gulf Islands and Juan de Fuca)
• Kelowna and West Kelowna
• Nanaimo-Lantzville (excluding Parksville and Qualicum Beach)
• Fraser Valley (Abbotsford, Chilliwack, and Mission only)

The geographical areas were previously more broadly defined, but today’s announcement narrows down the precise areas.

“We’ve refined the geographical areas the tax applies to. We’ve excluded most smaller islands and communities and unincorporated areas. We are focusing in on where the crisis greatest – major urban centres in the province – to tackle the housing crisis,” said James.

“This will help ensure British Columbians’ vacant vacation homes and cabins are not impacted.”

Rate structure
Additionally, a new rate structure for the ST – based on the value of a residential property – has been released:

• British Columbians who own vacant homes in designated urban centres will be taxed at a rate of 0.5% on the property value in 2018 and beyond.
• Canadian citizens and permanent residents who do not reside in BC will pay 0.5% in 2018, increasing to 1% in 2019 and beyond
• Foreign investors and satellite families will start at 0.5% in 2018, increasing to 2% in 2019.

“The principles of the Speculation Tax remain the same,” said James. “It asks foreign investors and non-residents who hold vacant properties in major urban centres to contribute to our province. It provides incentive for people who own multiple properties to rent those properties out.”

“Only those who hold multiple properties and leave them empty in our province’s major cities will be asked to contribute. Our tax on speculators focuses on people tying up housing stock in BC’s overheated housing market and taking that housing stock out of the communities… We are going after those who are clearly taking advantage of the market and driving up prices.”

Exemptions
Landlords and those who own a secondary home such as vacation homes and cabins will be exempt from the ST.

Secondary properties utilized as long-term rentals – homes that are rented out for at least six of the year for at least 30 days at a time – will be exempt from the ST.

Those who have homes governed by strata policies that forbid rentals will initially be exempt from the ST. James says properties under these situations will be temporarily grandfathered into the system.

British Columbians with a second home valued up to $400,000 will be exempt from the tax through a non-refundable $2,000 tax credit that is immediately applied on the speculation tax. It will offset the tax payable for the home.

Exemptions will also apply for some special circumstances, such as a senior citizen who is entering a long-term care facility and the property of a deceased family member that is going through the probate process.

Implications of the ST changes
When asked whether the ST will affect the volume of housing that developers will build, James said that will not be the case if developers are targeting locals only.

“This will not impact the supply if those developers are looking to sell to British Columbians,” she said. “It will not impact the supply at all. If you have a specific developer who is targeting a speculator from overseas, who is targeting foreign speculators, then yes they will have to pay this tax.”

In last month’s provincial budget, forecasts show the new ST will add $200 million to the provincial government’s revenues in the 2019-20 fiscal year, but James says the changes are not expected to significantly impact the forecast.

“We were very conservative when we put the numbers into the budget. We, in fact, made sure we were conservative with those numbers, and we were not targeting British Columbians,” said James.

“We do not anticipate it will make much change to the numbers, but we will certainly be monitoring them.”

Today’s announced changes follow weeks of outcry and backlash since the budget announcement, with developers claiming the ST will suppress overall housing supply. It also sparked concerns from BC residents who own second homes as vacation properties but are not speculators.