On February 20, 2018, the BC Government released the 2018 Provincial Budget (the “Budget”). The Budget is highlighted with a wide range of real estate initiatives aimed at increasing transparency and housing affordability.
Here are the key points you need to know:
Introduction of a Speculation Tax
In response to rising property prices, a new annual tax on residential property (the “Speculation Tax”) will be introduced in fall of 2018 on both foreign and domestic speculators, including satellite families, who own property but do not pay income taxes in BC. The Speculation Tax will apply in Metro Vancouver, Fraser Valley, Capital and Nanaimo Regional Districts, and the municipalities of Kelowna and West Kelowna. The tax rate will be 0.5% of taxable assessed property value for 2018 and 2% for subsequent years (based on assessed value). Most principal residences and long-term rentals will be exempt, but second homes will be subject to the tax.
Increase and Expansion of the Foreign Buyers Tax
Effective on February 21, 2018, the additional property transfer tax that came into effect in August of 2016 (the “Foreign Buyers Tax”) will increase from 15% to 20%, with no exemption for existing contracts. In addition, its reach will be expanded to include areas outside of Metro Vancouver, including the Fraser Valley, Capital, Central Okanagan and Nanaimo Regional Districts.
Increase in the Property Transfer Tax and School Tax
Also effective on February 21, 2018, residential properties valued at over $3 million will be affected by an increase in the property transfer tax from 3% to 5% on the fair market value in excess of $3 million. Such properties will also attract increased School Tax, to be implemented sometime in 2019.
Strengthened Audit Powers and Enhanced Information Sharing
In an attempt to reduce tax fraud and close loopholes in existing legislation, the audit and enforcement powers of tax administrators are being strengthened. In particular, the Property Transfer Tax Act (“PTTA”) will be amended to increase the limitation period for property tax assessments from two years to six years, allow the collection of additional buyer information, introduce administrative penalties for non-compliance, extend the general anti-avoidance rule to the entire PTTA, and enable tax administrators to compel access to information relevant to transfers, including information in a multiple listing service database.
Stopping Tax Evasion on Pre-Sale Condo Assignments
The Government is building a database on pre-sale condominium assignments, to be accessible by federal and provincial tax authorities. Developers will soon be required to collect and report comprehensive information on such assignments. The breadth of data to be collected has not yet been disclosed, but information on residency status is likely to be included as part of the required information.
Unveiling the Identities of Beneficial Owners
The Government is introducing a public beneficial ownership registry that provides transparency on the true owners of real estate in the province. This measure will be supplemented by the Government’s new requirement for property owners to disclose more information about beneficial ownership on Property Transfer Tax return forms. Furthermore, the Government will introduce legislative amendments requiring BC corporations to keep updated information on beneficial owners in their records offices. These initiatives target speculators, tax frauds and those participating in money laundering.
AirBNB to Collect Taxes
The Government has agreed to allow the home-sharing company to collect the provincial sales tax and up to 3% of the municipal and regional district tax on all of its accommodations. The tax revenue will be put towards helping the Province and local governments improve housing affordability.
It is evident that transparency and housing affordability are priorities for the BC Government. The assertive measures being undertaken to address the Province’s distorted housing market is likely to continue. Bare trusts are notably not being taxed in the Budget, but it looks like the BC Government is taking steps towards setting up a taxation scheme that could potentially apply to bare trusts in the future.