BC Speculation Tax - Good or Bad
The government of British Columbia is proposing to apply a new “speculation” tax on real estate in specific areas of the province in an attempt to stem the increasing number of properties that are secondary homes not being lived in and that are not provided for rental use. These secondary homes are mostly owned by non-resident speculators, foreign nationalities, as well as satellite families who live in other parts of BC and homeowners who are Canadian residents of other provinces.
The pressure on the real estate market due to the purchase of secondary homes from all sources has driven up the price of homes to the point where many local residents are not able to enter the market due to the high cost.
The new tax which is currently proposed to come into effect October 1, 2018, aims to end speculation on real estate and to reduce the number of secondary homes. The anticipated result is that more homes will be available for purchase or rental by BC residents at a reasonable price. The annual tax will be assessed on anyone who owns a secondary home that is not rented out long term. This will also include cottages and vacation properties in designated areas.
Due to a huge outcry over the proposed tax, the BC government made some changes to the tax rates and modifications to those areas affected. As it stands now, for 2018 the annual tax will be .5% of the 2018 assessed property value for all secondary homes in the prescribed areas. The tax applies to Metro Vancouver, the Capital and Nanaimo regional districts, Fraser Valley, and Kelowna and West Kelowna areas. Most Islands are excluded. In 2019 and subsequent years, the tax rate will increase to 1% for Canadian citizens or permanent residents who do not live in BC and to 2% for non-residents of Canada and satellite families who live in BC but do not pay their share of income taxes in the large urban centres facing the housing affordability crisis.
As a result, a secondary home owned by a BC resident with a value of $1,000,000 will pay a tax of $5,000 in 2018 and beyond. The same house owned by a Canadian living outside the Province will pay $5,000 in 2018 and $10,000 in 2019 and future years. A non-Canadian will pay $5,000 in 2018 and $20,000 in 2019 and future years.
To avoid the tax, properties which fall within the scope of the proposal will have to be rented long term for at least three months in 2018 and six months for periods of at least 30 days in 2019.
To help offset the tax liability, BC residents who own secondary homes in the subscribed areas with a value under $400,000 will receive a non-refundable credit of $2,000 that is immediately applied against the tax. This is meant to alleviate the tax on cottage properties for BC residents.
The problem here is that for homes with a value greater than $400,000, such as described in the above scenario, the BC homeowner will still be paying the portion of the tax that exceeds the $2000 credit, i.e. $3000 speculation tax rather than $5000.
The biggest outcry over the tax proposal is from Kelowna where a great number of people from Alberta and other provinces own property in the area, either as recreation property or for future retirement. The fear is that the tax will have a damaging effect on the economy of the area as people choose other unaffected areas to invest in or will sell their homes creating havoc to builders and suppliers as new development will be curtailed.
The Whistler and Elk Valley areas have avoided being included as designated taxable areas. We are considered Resort Destination areas and the Government did not wish to impact the tourism industry. Polls would indicate that possibly four out of five people in BC support the new tax. There has been talk recently that it would have been good for Fernie to be included in the taxable areas. The suggestion is that our local young people cannot afford to buy a home here as the values have been driven out of reach by non-residents who have bought homes for recreational purposes and do not live here permanently. The belief is that having the tax here in Fernie would lower the real estate market and allow entry into the housing market for first time home buyers.
What do you think?