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:
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 (no specific definitions of long term rental provided)
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). Given this constantly changing landscape, we appreciate that you and your clients may wish to work with a law firm that is well-versed in these matters and Mullin DeMeo is proud to continue to assist you and your clients in this regard. If you have any questions on the above or any other real estate related matter, please do not hesitate to contact our office at any time.