2018-05-14 10:46:27 Accounting News English Look at the rules and reasoning behind British Columbia's new speculation tax. Read about the exemptions, and start to figure out if your... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/05/Accountant-researches-the-benefits-of-the-New-Speculation-Tax.jpg https://quickbooks.intuit.com/ca/resources/accounting-news/bc-new-speculation-tax/ What You Should Know About B.C.'s New Speculation Tax

What You Should Know About B.C.’s New Speculation Tax

2 min read

As of 2018, many areas in British Columbia are in the midst of a housing crisis. Prices are high, and vacancies are low. But at the same time, many homes sit empty as their owners wait for their values to rise. To deter people from using homes as if they’re playing the stock market, the B.C. government is imposing a speculation tax. Part of the 2018 budget, the tax primarily affects foreigner investors, but some of your clients with vacation homes in British Columbia may also be affected.

How Much Is the Speculation Tax?

For 2018, the government eases in the tax at a rate of 0.5% of the property’s value. In 2019, the rate stays the same for British Colombians who are Canadian citizens or permanent residents. But it increases to 2% for foreign investors and satellite families. A satellite family refers to situations where some of the family lives in a foreign country and the rest resides in Canada. Canadian citizens or permanent residents who don’t live in British Columbia face a 1% rate that year.

For example, imagine you have a client who lives in Alberta and has a home in British Columbia. If the B.C. property is worth $400,000, they face a $4,000 speculation tax in 2019. But there are ways to avoid this tax.

Who’s Exempted?

Luckily, the speculation tax doesn’t apply in a lot of situations. Because it’s designed to address housing shortages, the tax primarily only applies to homes in urban centres. Vacation homes and cottages in rural areas, small towns, and resorts such as Whistler don’t face this tax.

Even in urban centres, the speculation tax doesn’t apply to rental homes. Unfortunately, your clients can’t just pop the property on Airbnb a few times to qualify for this exemption. Instead, the home needs to be rented out for at least six months of the year in 30-day or longer increments.

There are also exceptions for homes that are empty because the owner is ill, away for work, or deceased. On top of that, B.C. residents can receive a tax credit that effectively erases this tax.

What’s the Credit for British Colombians?

The vast majority of British Colombians won’t ever have to pay the 0.5% tax thanks to a credit. Worth up to $2,000, the credit eliminates the speculation tax on second homes worth up to $400,000. As a result, British Colombians only have to pay this tax if their second home is worth more than that value or they have multiple second homes.

To explain, imagine your client has a vacation home worth $500,000. Typically, the speculation tax on that home would be $2,500. That’s $500,000 multiplied by 0.005. After your client claims the $2,000 credit, they only owe $500. To show you what happens when a client has two vacation homes, say one home is worth $300,000 and the other is worth $200,000. The first home faces a potential speculation tax of $1,500, while the tax on the second home is $1,000. Your client can only apply the credit to one property, so they use it to wipe out the tax on the $300,000 property. Then, they pay the tax on the other property.

Although most British Colombians don’t have to worry about this tax, it’s going to lead to a much larger than usual property tax bill for others. To help your clients prepare, you may want to talk about budgeting or explore alternatives such as renting out the property to avoid this tax.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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