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taxtrouble 34 | spring 2018 cmba-achc.ca CmB magazIne all Canadians should be worried about B.C.'s promised speculation tax By rAy BAsi, l.l.B., stAff, eDucAtion AnD Policy review a dangerous PreCedenT B.c.'s recently announced speculation tax should cause concern for all Canadians, including British Columbians. It is based on a vision of Canada where each province pursues solely its own interests, without any regard for the contributions of or impact on residents of other provinces. If other provinces follow suit, Canada will become less of a nation and more a loose collective of provinces driven only by self-interest. While B.C.'s speculation tax is of provincial origin, it very much poses a significant national concern. All Canadian mortgage brokers – in fact, all Canadians – should be very concerned. Why A SPECuLATIon TAx? e B.C. government has said, "Stabilizing B.C.'s out-of-control real estate market is essential to addressing the housing crisis." It intends to achieve this stabilization by various methods including curbing demand, reducing tax evasion, closing real estate market loopholes and cracking down on speculators who don't contribute to B.C. and its communities. e B.C. government has concluded that non-resident investors speculating in B.C.'s housing market have driven up prices, removed rental stock and distorted the market to the prejudice of British Columbians seeking housing. WhAT IS ThE SPECuLATIon TAx? B.C. intends to bring the new speculation tax on residential property into effect beginning in fall of 2018. e tax will target foreign and domestic speculators who own residential property in B.C. but do not pay income tax in B.C. In 2018, the tax rate for all properties subject to the tax is 0.5 per cent on the property value. In 2019 and subsequent years, the tax rates will be as follows: n 2 per cent for foreign investors and satellite families (satellite families are households with high worldwide income but who pay little income tax in B.C.); n 1per cent for Canadian citizens and permanent residents who do not live in British Columbia; and; n 0.5 per cent for British Columbians who are Canadian citizens or permanent residents (and not members of a satellite family). Primary residences of British Columbians are exempt from the tax. Properties that are used as qualifying long-term rentals are exempt from the tax. Homes will need to be rented out for at least three months to qualify for an exemption in 2018. Starting in 2019, homes will need to be rented out for at least six months, in increments of 30 days or more, to qualify for an exemption. British Columbians who are Canadian citizens or permanent residents, and not part of a satellite family, will be eligible for a tax credit that is immediately applied against the speculation tax. is credit will offset a total of $2,000 in speculation tax payable. For homeowners with multiple properties, the tax credit will only apply to one property. is tax credit will exempt British Columbians from paying tax on a second home valued up to $400,000. For more expensive vacant properties, the tax applies to only the value of the property above $400,000. e province will also introduce a non- refundable income tax credit which will allow those who pay income tax in B.C. to offset the new tax. No information is available yet as to the qualifications for the tax credit. Do note that as the tax credit is to be non-refundable, any amount of tax credit le aer reducing the income tax payable to B.C. to zero is forfeited. To avoid the tax pushing "speculators" from one B.C. community to another, the new tax will apply to B.C.'s larger centres, namely Metro Vancouver Regional District (excluding Bowen Island and Electoral Area A, except the part of the electoral area that is the UBC and University Endowment Lands), the Capital Regional District (excluding the Gulf Islands and Juan de Fuca), Kelowna-West Kelowna, Nanaimo-Lantzville (excluding Protection Island), Abbotsford, Chilliwack and Mission. Most islands are excluded. noT Really A SPECuLATIon TAx e speculation tax is improperly named. It truly does not target speculators but rather non-B.C. residential property owners who do not pay income tax in B.C. Really, it is an empty homes tax applicable to non-residents. e tax captures people who own vacation homes or residences used on business trips in B.C. that are empty otherwise. Some of these properties are owned for many years and the owners are certainly not speculating. unInTEndEd ConSEQuEnCES e new tax presents risks of a number of possible unintended consequences, including: n e new tax could have a disastrous impact 1 2 3 4

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