Buying a Property in British Columbia? Know Your Tax Costs – Part 2

This article is the second of a two-part series which discusses common implications and considerations post-purchase of a property in British Columbia, specifically, Vancouver.

• Speculation and vacancy tax
• Empty homes tax
• Property taxes
• Taxable capital gains

Please refer to part one for a discussion on pre-purchase considerations.

SPECULATION AND VACANCY TAX (SVT)

The SVT is a provincial tax automatically imposed by the government of B.C. for all residential properties in many B.C. regions. The purpose of the SVT is to discourage housing speculation in order to turn vacant homes into housing for B.C. residents. The tax is based on property ownership as of December 31^st each year.

An annual declaration is required by all registered owners of a residential property. This means that if one property has two registered owners, both owners are required to complete a separate declaration. Owners should receive a declaration letter as a reminder, which includes a letter ID and declaration code. The declaration is completed online and confirms the residency status and property usage in order to determine whether the property is exempt from the SVT. The declaration is due March 31^st annually.

Most properties will be exempt from the SVT. The most common exemptions are if the property:

• is your principal residence;
• is occupied by a tenant;
• was purchase or inherited in the declaration year; or
• is land under development.

For a full list of exemptions, please click here.

If none of the exemptions apply, the property will be subject to a SVT of a percentage of the property’s assessed value as per B.C. Assessment as of July 1^st of the applicable year. The rates are as follows:

• 2% – foreign owners[1], satellite families[2]
• 0.5% – Canadian citizens or Canadian permanent residents who are not part of a satellite family

When there are multiple owners, the SVT will be allocated based on ownership. For example, if Person A and Person B have equal ownership in the property, they each will owe tax on 50% of the assessed value. Amounts owing are due on the first business day in July.

EMPTY HOMES TAX (EHT)

The EHT is a municipal tax imposed by the City of Vancouver on residential properties in Vancouver classified as Class 1 properties. The EHT and SVT both have the same goals of addressing the current rental housing market crisis.

An annual declaration is required for each property. Unlike the SVT, only one property status declaration is required per property. The declaration is completed online and confirms the property status in order to determine whether the property is subject to the EHT. The deadline for declaration is in February.

Most properties will not be subject to the EHT. The most common exemptions are if the property:

• is a principal residence for the owner;
• is rented for at least six months of the current year, in periods of 30 or more consecutive days; or
• is undergoing major renovations or redevelopment.

For a full list of exemptions, please click here. Note that a declaration is required even if the property is exempt.

The EHT is calculated as 1.25% of the property’s assessed taxable value in the previous tax year. The deadline for payment is in April.

PROPERTY TAXES

Property taxes are an annual tax charged by each municipality. The purpose of property taxes are to help fund both municipal and provincial public services (e.g. police stations, fire departments, public parks, public schools, public transit, etc.). Each municipality may have varying rates; however, our focus will be in the City of Vancouver.

The City of Vancouver sends two tax notices annually – the first being an estimate based on actual taxes paid in the prior year:

• Advance tax notices
  • sent in November and payment is due on the second business day in February
• Main property tax notices
  • sent in June, and payment is due on the second business day of July

For the City of Vancouver, the rate is 2.92% of the property’s assessed value. See this link for a breakdown of the rate. Beginning in 2020, for certain properties[3] valued at $3M or greater, there is an additional school tax rate of 0.2% for any portion of the property’s assessed value in excess of $3M and 0.4% for any portion in excess of $4M.

Property owners can claim a home owner grant to reduce the total property taxes payable if they meet certain eligibility criteria. This grant must be claimed annually.

CAPITAL GAINS UPON SALE

In many cases, properties are purchased with the intention of renting out. In this situation, one potential post-purchase implication to consider is capital gains upon sale of the property. A capital gain occurs when you sell the property for more than the total of its adjusted cost base (cost plus acquisition costs such as legal and commission fees, less any depreciation taken) and any related selling costs (e.g. legal, transfer taxes, advertising, certain repairs, commissions, etc.). For a property in B.C., 50% of the total gain is taxable.

In a case where the property is designated as a principle residence for some or all of the years owned, a principal residence exemption may apply and reduce the overall capital gain. You can only designate one property as your principle residence per year. Furthermore, it should be noted that a taxpayer and their spouse/common-law partner can only designate one principal residence between the two (during and after 1982). For example, if a husband and wife own both a house and a cottage, they collectively can only designate either the house or the cottage as their principle residence in a given year.

There are four conditions that need to be met to qualify to be designated as a principle residence:

1. Is a house, cottage, condominium, apartment, trailer, mobile home, or houseboat;
2. You either wholly or jointly own the property;
3. You, your current/former spouse or common-law partner, or children lived in it at some time during the year; and
4. The property is designated as your principle residence.

The calculation for the principal residence exemptions is:

(# of years home is principal residence + 1) x capital gain
# of years home is owned

The +1 is meant to account for a year when a property is sold/purchased.

For illustration purposes, here is an example of some ongoing taxes that a property owner in Vancouver, B.C. may incur:

You are a foreign national working temporarily in Vancouver and purchased a newly constructed home in Vancouver on January 1, 2020 at a selling price of $4.2M for the purposes of holding and selling for a profit. You still do not have plans to immigrate to Canada and are still holding the home with no plans to rent out the home. The property’s assessed value as of July 1, 2021 as per BC Assessment was $3,780,000. It is now December 31, 2021 and you are starting to think about all the upcoming filings and payments you are responsible for.

1. Speculation and vacancy tax
   1. Applicable? – Yes
   2. Filing obligations – Complete online declaration by March 31, 2022
   3. Payment required – $75,600 (2% x $3.78M); payment due by July 1, 2022
      
2. Empty homes tax
   1. Applicable? – Yes
   2. Filing obligations – File online declaration by February 2022
   3. Payment required – $47,250 (1.25% x $3.78M); payment due by April 2022
      
3. Property taxes
   1. Applicable? – Yes
   2. Filing obligations – N/A
   3. Payment required – $111,936 (2.92% x $3.78M ); payment due (less any amount paid on advance notice) by July 4, 2022
      
4. Taxable capital gains
   1. Applicable? – No
   2. Filing obligations – N/A
   3. Payment required – N/A

In summary, the total payments considering all applicable taxes for the 2021 calendar year is $234,786 and the important dates to note are as follows:

• February – EHT declaration deadline
• February (2nd business day) – Advance property tax payment deadline
• March 31 – SVT declaration deadline
• April – EHT payment deadline
• day) – SVT payment deadline
• July (second business day) – Main property tax payment deadline

In addition to the costs discussed above, other common considerations are rental tax implications such as income tax on rental income, and GST on short-term rentals. For any questions or to discuss any planning opportunities that may be available, please contact your Smythe advisor.

[1] Individual who is not a Canadian citizen or Canadian permanent resident

[2] Individual whose income not taxed in Canada is greater than their income taxed in Canada. If married, the combined income of both spouses is considered

[3] Includes detached homes, stratified condominiums or townhouse units, residential class vacant land. Excludes apartment buildings.