In an effort to curb speculation in British Columbia’s housing market over the last few years, the BC government and the City of Vancouver have independently implemented real estate taxes designed to increase housing affordability and convert underutilized properties into homes that are available for BC residents.
Whether these real estate taxes will achieve their desired outcomes remains to be seen. What is already evident, however, is the impact of these new taxes on mobile employees—those individuals who’ve been asked to relocate by their employers.1 This impact and the exemptions available to alleviate it are the focus of this article.
Foreign home buyers tax
On August 2, 2016, the BC government introduced an additional 15% property transfer tax on residential property purchases made by all foreign nationals2 in Metro Vancouver, based on their proportionate share of ownership. This tax applies in addition to the general property transfer tax.3
When it introduced this additional property transfer tax, the BC government said it would continue to monitor data on foreign investment and foreign ownership in BC’s real estate market. Within a year, no doubt recognizing that this additional tax had put home ownership out of reach for many foreign nationals who’d relocated to Metro Vancouver for work, the government introduced an exemption. Effective March 31, 2017, this exemption applies to any foreign national who is a confirmed provincial nominee under the BC Provincial Nominee Program (BC PNP)4 and who intends to use the property as their principal residence.
The new property tax exemption does not apply to individuals working in BC under a valid work permit, individuals who have applied to become permanent residents of Canada through normal channels, or BC PNP candidates in the entrepreneurial immigration stream.
This exemption for confirmed provincial nomineees under the BC PNP may explain the surge in the number of people coming to BC through this program: According to a recent Vancouver Sun article, 6,500 newcomers entered the province through the BC PNP in 2018 compared to 2,600 a decade earlier. The article notes that many of these individuals were able to quickly purchase residences in Metro Vancouver.
A further enhancement, which was made effective August 2, 2017, provides a refund of the additional tax if the purchaser:
- Is a foreign national at the time of purchase;
- Becomes a Canadian citizen or permanent resident on or before the first anniversary of the registration of the property;
- Continuously inhabits the property as their principal residence;
- Moved into the home within 92 days from the date the property purchase was registered;
- Continued to reside in the property as their principal residence for at least one full year after the property purchase was registered; and
- Has not previously obtained a refund or qualified for the exemption.
If a foreign national does not apply for the exemption at the time of purchase, they can apply for a refund of the tax paid within 18 months of registering the purchase transaction at the Land Titles Office. The application for a refund must be submitted after the first anniversary and within 18 months of the date the property transfer was registered.
Empty Homes Tax
Beginning in the 2017 tax year, the City of Vancouver implemented an annual tax of 1% on a property’s assessed value if that property is deemed empty. Generally, properties used as a principal residence for at least six months of the year or homes rented for at least six months of the tax year are excluded from the tax.
So what if a person is travelling or has to relocate from Vancouver for an extended period of time and leaves their home unoccupied during their absence? If the property is the owner’s principal residence, the property is exempt from the tax regardless of how much time they actually occupy the property. According to the definition of principal residence, an owner is not required to physically occupy the property for any specific period of time as long as the property is their principal residence.
Therefore, even if the owner spends more than six months of the year living elsewhere or travelling, their property is exempt from the tax as long as the owner takes sufficient steps to ensure that the home remains their principal residence.
Furthermore, the Empty Homes Tax does not apply if:
- An individual’s principal residence is outside Greater Vancouver, but they own a second home within the City of Vancouver; and
- The individual occupies the second home for at least six months because they are employed full-time in Greater Vancouver and their employment requires their physical presence in Greater Vancouver.
These exemptions are not automatic: The owner is required to file a property status declaration each year.5
Speculation and Vacancy Tax
As part of the 2018 provincial budget, the BC government introduced its Speculation and Vacancy Tax, which targets individuals who own residences in BC but do not pay income taxes in the province. Where a residential property that is located in a taxable area does not qualify for one of the exemptions (discussed below), the tax is payable as follows:
- For 2018 – 0.5% of the assessed property value for all properties subject to the tax; and
- For 2019 and subsequent years – 0.5% of the assessed property value for Canadian citizens or permanent residents of Canada who are not members of a satellite family6 and 2% of the assessed property value for foreign owners and satellite families.
Non-refundable tax credits
The following non-refundable tax credits are available to offset any tax payable:
- BC residents, excluding satellite families, are eligible to receive a maximum credit of $2,000; and
- All other owners are entitled to a credit based on their reported BC income7 and how they use their property. The credit is the lesser of:
- The tax payable on the property; and
- The tax credit balance (BC income x 10 x tax rate).
All property owners who own residential property in a taxable area must complete an annual declaration to claim any relevant exemptions. For individuals,8 the various exemptions include but are not limited to the following:
1. Principal residence exemption - To be eligible for this exemption, an owner must be a Canadian citizen or permanent resident of Canada who is a BC resident for tax purposes. Eligible circumstances for the principal residence exemption include but are not limited to:
- a) Owners who lived in the residence before moving out of province. (This applies to part-year residents who lived in the home and then moved during the year, but still owned the property at the end of the year).
- b) Owners who lived away from home for other reasons. If an individual is away from their principal residence for an extended period of time or no longer lives in the property, they can claim an exemption once every 10 years.
2. Tenancy exemption - This exemption applies to homes occupied by renters for at least six months of the year. It also applies to homes occupied by family or non-arm’s length persons.
A mobile employee who has accepted a job posting outside of BC is exempt from the tax if they rent out the property during their absence. But if they decide to leave the property vacant during their absence, they could claim the principal residence exemption in the year they leave the province and subsequently claim the principal exemption once every 10 years.
However, if they are gone for more than two years, they could be subject to the tax unless one of the other exemptions applies.
To ensure that relocations succeed and mobile employees are able to maintain their standard of living, employers usually provide immigration and taxation support, including tax equalization programs and allowances. In light of these new real estate taxes, employers should review their programs to ensure that relocations are structured to take advantage of possible exemptions and that mobile employees are not disadvantaged.
Lawrence Bell, CPA, CA is a senior manager with the personal advisory services – global mobility and rewards practice of Ernst & Young LLP in Vancouver.
Originally published in the May/June 2019 edition of CPABC in Focus.
1 Mobile employees may be foreign nationals who are moving or have moved to BC and have purchased residences here or individuals who have left or are leaving Vancouver to work elsewhere.
2 A foreign national is defined as a non-Canadian citizen or a non-permanent resident.
3 The property transfer tax is 1% on the first $200,000 of assessed value; 2% on the value greater than $200,000 and up to and including $2,000,000; 3% on the value greater than $2,000,000; and a further 2% on the value exceeding $3,000,000.
4 The BC PNP is a way for immigrants to become permanent residents of Canada, and it requires that the nominee have the support of an eligible employer who must fulfil certain responsibilities and requirements. These requirements can be found online at welcomebc.ca.
5 The 2018 Declaration was due February 4, 2019.
6 A satellite family is defined as persons who declare less than 50% of their total combined household income for the year on a Canadian income tax return. This could apply even if an individual is a Canadian citizen or BC resident.
7 Reported BC income is income that has been reported to the CRA for tax purposes and is the current year income plus the income from two previous years. However, BC income that has been previously used to reduce the tax liability cannot be used again.
8 If there is more than one owner on title, each owner claims their relevant exemption. Owners may claim different exemptions for the same property.