Speculation Tax Update
The
British Columbia government recently announced a “Speculation Tax”
effective for the 2018 tax year. Details on the Speculation Tax have
been limited especially given the magnitude and scope
of the new tax. Below is some information released to date along with a
link to the most recent Ministry of Finance Information Sheet:
So far the B.C. Government has advised the following:
Speculation Tax:
1.
The Speculation Tax will target
foreign and domestic speculators in BC.
2.
Exemptions will be available for:
a.
Principal residences (excluding satellite families
– households with high worldwide income that pay little income tax in BC )
b.
Qualifying long-term rental properties (minimum 6 months rental)
c.
Certain special cases
3.
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.
4.
In 2018, the tax rate will be 0.5% of assessed value. In 2019, the rate will increase to 2% of assessed value.
5.
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.
At this time the following concerns and practice points have not been addressed:
1. No
grandfathering announced for existing owners or buyers currently under a contract of purchase and sale.
2.
No announcement whether this tax can form a lien or is otherwise
attached to the Speculator’s property (including after the Speculator’s
property
is sold in which case a Non-Speculator Buyer may be liable for a
Speculator Seller’s tax liability).
3.
No announcement on how the Speculation Tax is to be prorated when a
Speculator Seller has paid the tax for the year and the property is then
sold
to a Non-Speculator Buyer.
4.
No announcement on any Seller or Government certificates that may
protect a Buyer from tax liability when purchasing from a Speculator
Seller or
a Seller that the government may later deem to be a Speculator.
5.
No announcement on suggested changes to the Contract of Purchase and
Sale that may be required to deal with liability to both buyers and
sellers
due to the proposed tax (including a Non-Speculator Buyer that may be
liable for tax liability from a Seller that is later deemed to be)
Many
Realtors have commented that there appears to be a new landscape where
government passes sweeping legislative changes often times on short
notice, without grandfathering, without consultation
with industry and with significant penalties (for example penalties of
double the tax, interest on the tax, a fine up to $250,000 and up to two
years in prison for Realtors providing certain advice or preparing
certain documents under the
Property Transfer Tax Act).
