The 2018 BC budget proposed a new tax for people who speculate on residential real estate in the province of British Columbia. It is aimed at buyers who flip houses and capitalize on the increasing housing prices.
The speculation tax is based on a housing affordability plan initially proposed by academics at Simon Fraser University and the University of B.C. However, the modified version that the government has put forward functions more like an empty home tax than a speculation tax.
The unclear language and vague tax regulations have caused a backlash from homeowners with second properties in the targeted areas. In an effort to inform concerned residents, John Antle Mortgages team in Kelowna has set out to clarify some of the information surrounding the speculation tax.
Homeowners in the Okanagan
The speculation tax will initially affect homeowners in the Metro Vancouver, Fraser Valley, Capital and Nanaimo Regional Districts, and in the municipalities of Kelowna and West Kelowna. It will be introduced in the fall of 2018. The rate in 2018 will be .5% and will increase to 2% of the assessed property value in the following year.
As stated above, the language of the budget is vague. This has caused uncertainty among British Columbia residents who own a second property in the affected areas.
Although its purpose is to prevent foreign speculators and out-of-province landowners, “the tax as described in the budget would also capture a Lower Mainland resident who owns a vacation property in Kelowna, on a Gulf Island, or in Greater Victoria.” Vancouver Sun.
The main concern for B.C residents is the uncertainty as to whether they will have to pay the speculation tax on vacation or secondary properties in B.C. In response to the backlash, Finance Minister Carole James has indicated that consideration is being given to British Columbians who already pay income tax in the province.
Secondary Properties in Kelowna, West Kelowna, and the Okanagan
The original plan, proposed by academics at two of B.C’s leading universities, was aimed at taxing out-of-province homeowners with vacant properties in urban areas like Metro Vancouver in response to the affordable housing crisis.
The version that the NDP government has put forth goes beyond what the academic housing plan intended. They are currently in the process of drafting legislation before it goes into effect this spring in order to address concerns and unintended consequences.
As it stands, the tax will apply to foreign and domestic buyers who own a residential property in B.C, but do not pay income tax in the province of B.C.
Most principal residences and qualifying long-term rental properties will be exempted from the tax, while special cases will be evaluated case by case.
Foreign and domestic homeowners who pay income tax in BC will have a non-refundable income tax credit available to offset the property tax. It’s important to note that this provides an income tax credit rather than an exemption. As a result, retirees and individuals with fixed incomes are potentially the most susceptible, as they may not be able to afford the speculation tax.
The speculation tax is only one aspect of the government’s comprehensive housing plan aimed at creating a more affordable housing climate for B.C residents. We can only wait and see whether other provinces will respond with corresponding taxes.