Vancouver’s vacancy tax will rely on owners to declare if homes are empty

FRANCES BULA (GLOBE & MAIL) - Vancouver’s new empty-homes tax, the first of its kind in Canada, will rely on homeowners to declare whether they are living in their properties or renting them out as part of an effort to battle foreign capital, absentee owners and speculation.

The vacancy tax, first floated by the city this spring as a bold solution to its overheated real estate market and the lack of rental housing, would be charged to people who leave their unit empty for a year or more when it’s not their principal residence.

News that the tax will rely on self-reporting comes on the heels of reports in The Globe and Mail that some speculators falsely classify properties as their primary residence to avoid federal taxes while making millions in profits. The Globe’s extensive investigation on housing has raised questions about access and affordability and prompted a new foreign-buyers tax by the provincial government.

The city says declarations about whether a property is occupied will be checked by audits, but it hasn’t decided on penalties for violators. The levy would be instituted for the 2018 tax year, and may cost owners as much as $20,000 a year on a million-dollar home, Mayor Gregor Robertson said Wednesday.

But experts are skeptical about whether the new tax will have the effect the city is hoping for.
“I don’t know how successful they’ll be at getting people to comply,” said University of British Columbia business professor Tsur Somerville.

One tax lawyer, whose firm doesn’t allow public comment, was also doubtful that the city would get the majority of owners who are leaving units empty to voluntarily declare that and pay the tax.
Canada’s income-tax system also relies largely on self-reporting, said the lawyer, but the federal Canada Revenue Agency has much stronger tools. Tax evaders can be criminally charged. They pay very stiff penalties – the tax owing, plus a 50-per-cent penalty – and the agency has an “army of auditors.” Jail sentences are also possible.

The mayor, the lawyer said, seems to be “just kind of hoping that some will pay and some will get caught.” But likely “some people will get away with it.”

The rental vacancy rate in Vancouver has been hovering at 1 per cent or lower for the past five years. Real-estate and rental prices have skyrocketed at a stunning pace in recent years, amid a swirl of stories about investors from mainland China.

“The main goal of the empty-house tax is to put more homes on the market,” said Mr. Robertson. “This empty-homes tax is not a silver-bullet-solution … but we expect this will be an important tool to start the shift.”

City staff looked around the world to find models, said the general manager of community services, Kathleen Llewellyn-Thomas. Mostly they discovered examples of what not to do, she said.

As a result, the city has decided not to determine vacancy by electrical or water use, but to require owners to declare on their annual tax-payment form whether it is a principal residence.

That will be backed up by audits, especially in parts of the city that previous studies have shown have high vacancy levels, she said. As well, staff will act on complaints phoned in by residents.
Mr. Robertson hasn’t said yet how many auditors the city will hire or what the penalties will be for wrongly claiming a principal residence.

Dr. Somerville said if the city’s tax motivates even 10 per cent of owners to rent out their units, that would double the number of vacant apartments in the city and that would be a benefit.
Vancouver will conduct a consultation in the fall to get public input on what the tax rate should be and who should be exempted. Mr. Robertson said the vast majority of Vancouver residents won’t be affected. It won’t apply to snowbirds, he said.

The staff report also suggests other categories that might be exempted, such as people who own units in strata-titled buildings that don’t allow rentals, people who have a principal residence somewhere else but live and work in the city at least nine months a year, or people who are renovating their houses.

A city survey earlier this year found that, in 70 per cent of the cases where residents called in to complain about vacant houses, the owner was waiting for building permits.

Certain cities around the world have been struggling with the phenomenon of empty homes or “ghost apartments.”

“Over the last decade, as globalization processes have intensified, ghost apartments have become a worldwide phenomenon,” said two Israeli scholars in a study published last September that looked at the impact the phenomenon was having in that country.
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Jerusalem doubled its property taxes this January for its estimated 10,000 ghost apartments.
But in places as far apart as New Zealand, Mumbai, Dublin, Paris and London, authorities have either considered vacancy taxes or implemented them.