Canadian homeowners have been faced with more than a few challenges in recent years. Inflation is continuing to rise and interest rates are soaring. Despite 2019’s National Housing Strategy, which recognized housing as a human right, Canadians are still struggling to find affordable housing.
Over the last 20 years, the cost of housing has increased at a rate that far outpaces income growth. One of the ways governments have addressed this shortage of available housing is by setting targets for building new homes and levying additional taxes on properties that are under-utilized. By the end of 2031, the federal government hopes to reach its target of 3.5 million new housing units.
Vancouverites are likely already familiar with the Vacancy Tax, which was first introduced in 2019. At that time, a 1% tax was levied against the assessed value of any home that was vacant for more than six months of the year. Since then, this Vacancy Tax, also called the Empty Homes Tax, has risen steeply to 5%, effective January of 2023. That makes it the highest rate of property tax in the province of British Columbia.More significantly unlike other property taxes that typically only apply when buying or selling, this tax is levied annually. If you’re subject to a Vacancy Tax, you’re required to submit an annual declaration. This year, it’s no longer just Vancouverites who need to worry. The application of the 5% tax has been expanded for 2023. It will now additionally apply to homeowners in the Capital Region District (CRD), the Cities of Abbotsford, Chilliwack, Kelowna, West Kelowna, and Nanaimo, as well as the Districts of Mission and Lantzville.
How do I know if the Vacancy Tax applies to me?
The purpose of this tax is to reduce the number of empty homes to address the need for more housing. It’s also a way to require foreign real estate investors to contribute a fair amount of taxes to the Canadian economy.
If you own a home in Vancouver or any of the expansion areas and it’s not your full-time principal residence (which exempts you), make sure you understand whether or not this tax applies to you and when you’ll be required to pay it.
British Columbia’s Vacancy Tax applies to properties in the Class 1, Residential classification that are vacant for six or more months of the year in the City of Vancouver and, effective this year, the list of expansion areas mentioned above.
To avoid paying this tax, the property must be your principal residence for at least six months of the year or lived in by a family member, friend, or other eligible occupant. Alternatively, you may tenant or subtenant for periods of at least 30 consecutive days totalling at least six months of the year.
There are some exemptions, as well. These include:
• If the homeowner is in hospital or a supportive care facility
• If the registered owner has died
• If there has been a transfer of the property title
• If the property is undergoing major renovations or redevelopment, and a permit was issued by July 1 of the assessment year
• If you’re subject to strata rental bylaws or a court order, are under court proceedings, or have some other eligible limitation.
Vacancy Tax is due on the first business day in July each year, or you can pay anytime after receiving your Notice of Assessment, which is sent to you by mail if your declaration indicates this tax is owing.
How can I avoid paying the Vacancy Tax?
You know the saying. You can’t avoid taxes, but a skilled accountant can find ways to help you minimize your tax burden and find efficiencies in your finances. If you don’t want to be subject to British Columbia’s Vacancy Tax, you may have to sell, rent, or loan your property to avoid paying even more in 2023 as the rate creeps up to 5%.
The tax has been criticized, particularly for having an audit and appeals process that’s too rigid. It can be beneficial to have an experienced advocate on your side if you want to be successful.
In particular, it’s been noted that there’s no direct contact with the review officer, which prohibits verbal communication and makes the process less personal. The same goes for the appeals process, which doesn’t allow for any two-way communication. The decision notifications are often vague and lack enough details, and even the City of Vancouver has acknowledged that there are issues with a lack of procedural fairness.
Consult our chartered professional accountants who are experienced in tax law if you have any questions about whether or not this tax applies to you. In addition to BC’s Vacancy Tax, the Government of Canada has also recently introduced the Federal Unused Housing Tax, subjecting foreign-owned and underused properties to an additional 1% federal tax. If you have a filing obligation and fail to meet it, you could be forced to pay a penalty of at least $5000, even if no taxes are owed.
At MMT Chartered Professional Accountants, our team is always available to answer your questions or discuss any provincial or federal tax matter. We can provide advice on how to minimize your tax burden and offer information on how taxes like the Vacancy Tax can impact you or your business.
If you’re still unsure if the Vacancy Tax applies to you, or have other inquiries about how to reduce the amount of taxes you pay, contact one of our experienced tax accountants today.
