18 Apr B.C. speculation tax changed to exempt Gulf Islands properties
Published on: March 27, 2018 | Last Updated: March 27, 2018 12:16 AM PDT
VICTORIA — B.C. Finance Minister Carole James will exempt the Gulf Islands and cottages in rural areas from the government’s new speculation tax, part of a suite of reforms she unveiled Monday to respond to weeks of criticism that the new tax unfairly penalized British Columbians.
The changes include limiting the geographic areas of the tax to Nanaimo and Greater Victoria, exempting Parksville, Qualicum Beach, the Gulf Islands and Juan de Fuca areas that had originally fallen under the regional districts in both areas that were to be subject to the new tax.
Metro Vancouver’s scope is tightened too, with the original Fraser Valley location being reduced to Mission, Abbotsford and Chilliwack, meaning Kent, Hope and Harrison Hot Springs are now exempt. Bowen Island is also exempt. Whistler, which is suffering a rental crisis, was not included in the tax. However, the municipalities of Kelowna and West Kelowna remain part of the tax, despite a request to government to be exempted.
“Over 99 per cent of British Columbians will not pay the tax,” said James. “Only those who hold multiple properties and leave them empty in our province’s major cities will be asked to contribute.
“People with cottages at the lake, or cabins, or on the islands, will not pay this tax. People with second homes outside of high cost urban areas will not pay the tax. We’re going after those who are clearly taking advantage of the market and driving up prices. We’re ensuring housing stock in our major cities is available for people who work hard and live in those cities.”
The government unveiled three rate structures for the tax as well. The full rate of two per cent will be reserved for foreign property owners, a middle rate of one per cent for out-of-province owners and the lowest rate of 0.5 per cent for British Columbians who own multiple properties but don’t rent them at least six months of the year.
“Properties that are used as qualifying long-term rentals are exempt from the tax,” read a government background document. “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.”
The rate redesign comes with a change to how the speculation tax would be administered.
At first, it was proposed to be paid up front and then offset by a non-refundable income tax credit to be applied in that fiscal year, potentially months later. That’s still the case for foreign and out-of-province owners. But B.C. residents will be given an upfront tax credit program that will give them the bill, if any, without having to go through the income tax system. The credit will be up to $2,000, said James, but only applicable to one extra property.
Also, properties valued at below $400,000 in urban areas such as Metro Vancouver and Greater Victoria will be exempt if owned by a British Columbian. People who own properties in condos where strata corporations don’t allow rentals will be temporarily grandfathered into the program, said James, but with a caution that government won’t allow stratas to try to change their rental rules now to avoid the tax. And there will be “special exemptions” for cases in which a senior goes into long-term care or there is a death in a family, said James.
The new tax was supposed to bring in $200 million in revenue in a full fiscal year, and James said “we don’t expect it’s going to make much change to the numbers” but if it does the government will cover that cost out of contingency funds.
Liberal Opposition Leader Andrew Wilkinson said the changes show the government is “making up tax policy on the fly.”
“The NDP are making up tax policy by trial and error,” he said. “They seem to think they’ll basically make all their revenue targets even though they’ve basically cut the tax in half.
“The exemptions they have outlined are very unclear and impossible to police.”
B.C. Green Leader Andrew Weaver called government’s willing to listen to feedback “a positive sign.”
“These changes go a long way to dealing with our initial concerns with the tax — they make it much more targeted and limit the effects on British Columbians with vacation homes,” Weaver said in a news release. “We look forward to the full details of the legislation to ensure it truly limits unintended consequences. We will continue to advocate for bolder policies to address speculation, including a flipping tax, the closing of the bare trust loophole and a New Zealand-style ban on foreign capital.”
West Kelowna Mayor Doug Findlater said his municipality is disappointed it wasn’t excluded from the tax.
West Kelowna is a young municipality with old and non-existent infrastructure and is relying on development to be able to upgrade.
“Our capital budget to upgrade infrastructure to urban standards… is likely to be impacted by any discouragement of development,” said Findlater.
He said council expects to receive a report from staff Tuesday on next steps, which could include continued discussions with the province.
Tim Neufeld, a Mission resident and Fraser Valley realtor, owns a condo in Kelowna he uses on long weekends and in the summer.
He says he’s left with little choice but to sell, as the speculation tax will cost him an additional $3,000 a year.
“It’ll just be an extra change I can’t afford,” he said.
More worrying than the annual levy is what the tax will do to his property values. About half of his condo building are owned by Albertans, who make up a significant number of buyers of proposed new high-rises in Kelowna, he said.
“Now I don’t know if those are going to go through. A lot of the pre-sales are likely to collapse because the money is coming in from Calgary, Edmonton and Red Deer.”
The government’s tweaks on Monday made the tax “mildly better,” said Neufeld, but still unpalatable.
“The tax, in essence, puts up an economic wall around B.C.,” he said.
The Urban Development Institute said it is pleased the government has responded to public feedback and made changes to the tax.
However, it is uncertain whether the speculation tax, as well as other new housing-related taxes, will continue to apply to residential development land, said CEO Anne McMullin.
“This combination of taxes and exemptions must be studied further to determine the impact on affordability,” she said in a statement.
“We have previously asked the provincial government to exempt any multi-family development lands from all the new housing taxes given these will ultimately get passed onto home buyers and renters alike.”
The UDI, which represents the real estate development community, had asked for a clarification from the provincial government and hope to get an answer in the coming days.
The changes come after weeks of sustained backlash against the speculation tax by British Columbians who own second homes and vacation properties. The measure was dubbed “the cabin tax” by the Liberal Opposition, which has hammered the NDP government for several weeks on a tax it says unfairly penalizes B.C. residents who worked hard to afford second properties or inherited vacation properties but are not speculators in the real estate market.
The tax, first announced in the Feb. 20 budget, was initially billed as targeting foreign speculators and out-of-province landowners. However, the details made it clear that it would also capture B.C. residents who own second properties, such as a Lower Mainland homeowner who also owns a vacation property in Kelowna, Greater Victoria or on a Gulf Island.
The government at first said those residents would get “a non-refundable income tax credit to help offset the tax for B.C. residents.” But it was unclear if the credit would have covered the upfront annual cost of the new tax for everyone. Some, such as seniors, could have been hit especially hard by the tax if they paid low income taxes but owned second properties with a high assessed value.
The geographic areas also provoked criticism. The government originally chose to apply the speculation tax to Metro Vancouver, the Fraser Valley, the Capital Regional District, the Nanaimo Regional District and the municipalities of Kelowna and West Kelowna.
The tax at first appeared to be a way to entice owners of second properties to put them into the rental market rather than leave them vacant, because long-term rental properties were exempt from the tax. But many noted that it was often not feasible to rent properties year-round in remote communities like the Gulf Islands. Nor did it make sense to exclude areas like Whistler and the Sunshine Coast from the tax.
The speculation tax appears a variant of a tax plan first proposed by academics from Simon Fraser University and the University of B.C. several years ago, and endorsed by the NDP during the election. That plan called for municipalities to choose whether to opt in or out of the tax, and would have pooled the money into a housing affordability fund. Government’s version removed the opt-in provision, and the funding is going into general revenue. The NDP did soften the original academic proposal to provide more exemptions for second properties.
The academics say part of the rationale for the plan was to increase the relatively low property taxes paid by speculators who purchase and sit on property in urban areas where there is a shortage, thereby driving up prices.
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