Speculation and Vacancy Tax Exemptions for Estates and Trustees

The BC government first introduced the BC Speculation and Vacancy tax in 2018 to incentivize homeowners to occupy their vacant properties. The tax also aims to generate revenue for housing initiatives, ultimately creating a more affordable housing market. Recently, the province has introduced legislation to expand the tax to more communities in BC. In this article, we’ll explore the impacts of the tax and exemptions available for estates, trustees and businesses.

What is the Tax?

The Speculation and Vacancy Tax aims to reduce the number of residential properties that sit vacant. In British Columbia, institutional and foreign investors in real estate have gained a reputation for leaving properties empty. Until recently, the Speculation tax only applied to residential properties in the following areas:

• Capital Regional District (CRD)
• Metro Vancouver Regional District
• City of Abbotsford
• District of Mission
• City of Chilliwack
• City of Kelowna
• City of West Kelowna
• City of Nanaimo
• District of Lantzville

As of 2024, property owners in the following areas will also have reporting obligations:

• Vernon, Coldstream;
• Penticton, Summerland;
• Lake Country, Peachland;
• Courtenay, Comox, Cumberland;
• Parksville, Qualicum Beach;
• Salmon Arm; and
• Kamloops

What Is the Tax Rate?

Currently, the rate varies based on the owner’s residency status, and if they are a Canadian citizen or resident. The tax is calculated on your property’s assessed value for that year. The rates are:

• 0.5% of the property’s assessed value for Canadian citizens and residents (excluding untaxed worldwide earners)
• 2% of the property’s assessed value for foreign owners and untaxed worldwide owners

Exceptions to the Speculation and Vacancy Tax

Most BC residents are exempt from the tax, which aims to deter a specific type of property investment which reduces available housing stock. However, the impact may be greater on some businesses which hold or develop residential property. According to the provincial government, many of the exemptions available to individuals can also be claimed by corporations and trustees.

Disclosure Obligations

In order to be eligible for certain exemptions, corporate interest holders, beneficial owners and partnership interest holders must all meet the requirements that individual owners would. This means that, in order to claim an exemption, all interest holders must be:

• Canadian citizens or permanent residents 
• BC residents for income tax purposes, and 
• Not untaxed worldwide earners or members of a satellite family

Additionally, trustees and business owners should contemplate their obligations under the Land Owner Transparency Act (LOTA). The Act requires that corporations and trustees register interests in land with the BC Land Title office. This requirement includes the submission of a transparency report. Under the Act, beneficiaries must be disclosed as indirect owners. There is a high bar for disclosure obligations, and all interest holders must meet the above criteria in order for an owner to claim an exemption.

Entities Which Are Always Exempt

Trustees of certain organizations may have no reporting obligations in order to be exempt from the tax. Properties owned by the following groups and organizations aren’t subject to the tax and do not need to submit an annual declaration form:

• An Indigenous Nation or a corporation owned by an Indigenous Nation
• Registered charities
• Housing co-ops
• Certain not-for-profit organizations
• Municipalities, regional districts, governments and other public bodies
• Corporations owned by municipalities or regional districts
• Corporations incorporated or continued through an enactment (“crown corporations”)
• Corporations designated as “agents of government” by legislation, and their wholly owned subsidiaries

Further, properties with an assessed value under $150,000, or unstratified apartment buildings with four or more units are excluded from the tax.

Exemptions for Tenanted Properties

Properties which are rented out for at least six months of the year are eligible for an exemption to the tax. Owners may have a number of different tenants throughout the year to meet his requirement. However, it is important to note that other provincial and municipal laws may impact business owners who rent out residential properties for periods of six months or less. For example, the Short-Term Rental Accommodations Act restricts short-term rentals of non-primary residences of less than 90 days in some areas. Having several consecutive short-term tenants is likely not a viable way to claim a tenanted property exemption to the tax.

Further, the Act differentiates between arm’s length and non-arm’s length tenants for determining exemption eligibility of owners. An arm’s length tenant has no personal relationship or advantage with the owner, and usually has a traditional tenancy agreement and rent arrangement. This arrangement always allows the owner to claim an exemption, even if they are a foreign owner.

A non-arm’s length tenant may be a family member or friend who lives in the property under a casual arrangement. A homeowner’s spouse or child can’t be considered a tenant for the purposes of the Act. Under section 39 of the Act, if the owner of the non-arm’s length tenanted property is not a Canadian citizen or resident, the tenant must meet the following conditions to claim an exemption:

• Be a Canadian citizen or resident;
• Be a BC resident for income tax purposes;
• Not be an untaxed world-wide owner or member of a satellite family; and
• Have BC income for the calendar year that is equal to or greater than 3 times the annual fair market rent for the entire property.

Exemptions for Estate Properties and Properties Held On Trust

There are also a number of exemptions relating to the death of a homeowner and the estate’s tax liabilities if the house is held on trust after their passing. If a homeowner dies, their estate and any other living owners on title are exempt from the vacancy tax for that year, and the year immediately following. This eases the burden on estate administrators who may be stuck waiting for probate to be able to distribute the property to its beneficiary.

Further, if the property is held in a trust created in the owner’s will for the benefit of a minor, the property is exempt until the beneficiary turns 19. This means that a property can be vacant without being subject to the tax, so long as all beneficial owners of the property are minors. Trustees must still disclose beneficial ownership and complete the yearly declaration form to claim an exemption.

How to Declare

Corporations, trusts and business partnerships with residential property in taxable regions will receive a declaration letter. The declaration process for these entities is similar to that of individuals, but requires more detailed information. You can fill out the declaration form on eTaxBC using your declaration letter, CRA business number and incorporation number. 

The form asks you to describe the ownership of the property, and disclose the personal details of all corporate interest holders, beneficial owners and partnership interest holders related to the property. This information includes their name, date of birth, country of residence and Social Insurance Number. 

If you’re unsure of how the newly expanded tax will impact your business or estate, contact an experienced lawyer today.

You can find the full list of exemptions for individuals, many of which are available to corporations and trustees, here.Have a question about this topic or a different legal topic? Contact us for a free consultation. Reach us via phone at 250-888-0002, or via email at info@leaguelaw.com.