Vancouver Vacancy Tax to impact retirees, purchasers in 2018
By Helen Burnett-Nichols, Contributing Editor
Several retirees and companies are likely to be inadvertently caught up in the City of Vancouver’s recent move to tax ‘vacant’ properties, leaving them with few options for continuing to use their apartments and condominiums for extended stays in the city, Vancouver corporate lawyer Jonathan Reilly tells AdvocateDaily.com.
In attempts to address the city’s housing crisis, Vancouver implemented an annual tax on empty or under-utilized residential properties earlier this year — called the Empty Homes Tax or Vacancy Tax — subjecting any property deemed empty to a one per cent tax of the property’s assessed taxable value.
False property status declarations will result in fines of up to $10,000 per day of the continuing offence, in addition to payment of the tax.
The tax does not apply to principal residences or homes rented for at least six months of the year, but all Vancouver homeowners are required to submit a declaration each year to determine if their property is subject to the tax, says the city. Property owners have until Feb. 2, 2018 to submit their declaration for 2017.
Unpaid tax will be added to a homeowner’s property tax bill at the end of the year.
The idea behind the tax, explains Reilly, founder of English Bay Law Corporation, is to bring unused properties onto the rental market.
“It’s not just purchasing property that's expensive, the cost of rental has skyrocketed as well. I think what they're trying to do is to improve the supply and reduce the price by flooding the market with supply,” he says.
“For unused land or an unused condo for the privilege of having it unused, you pay a one percent tax and that's supposed to encourage people to build housing or put housing on the rental market. So, the idea is relatively simple,” adds Reilly, whose firm practises real estate law.
But while Reilly says the Empty Homes Tax was rolled out over a longer time frame than the 15 per cent property transfer tax the province quickly levied on foreign buyers purchasing real estate in the Metro Vancouver area 18 months ago, he adds that it doesn’t appear to have had any more consideration behind it.
“There hasn’t been much thought to circumstances where it's taxing people who maybe they didn't intend to, or maybe on reconsideration, I would argue, shouldn't be taxed,” he says.
Indeed, says Reilly, one client that has inadvertently been caught up in the tax is a corporation with an office in Vancouver that receives regular visits from employees based in other countries.
“Any kind of corporation that has operations in more than just B.C., if they have enough employees coming in and out of the city on a short-term basis, some of those companies will buy an apartment.
"Under the tests that the city devised to determine whether or not your property is considered vacant, many of those corporate apartments will be deemed to be vacant and subject to the extra one percent tax,” says Reilly.
Retirees are another group that is disproportionately affected by the tax.
Reilly says one client chose to sell her property in Vancouver after it was deemed to be a vacant property and subject to the tax.
Although the individual spent her entire life working in B.C., she retired to Mexico and originally decided to keep her condominium in Vancouver in order to spend four months or so in the city with family.
“That’s someone who has a put a lifetime of work into the economy. And then, for whatever reason, has decided to spend most of their retirement somewhere else, but maintains the property that they had here for significant visits every year, but just not enough of a visit to be considered not vacant.”
Another client who lives in B.C.’s Okanagan Valley but maintains an apartment in Vancouver in order to spend two to three weekends a month with their children and grandchildren was also left with the decision of either having to sell the apartment and use hotels or pay the penalty after the city deemed the property unoccupied.
“It's quite shocking to have that lumped on you when you had planned your retirement and now the City of Vancouver is telling you that you're not allowed to do that anymore.”
Although there are exceptions to the tax for those who have land that isn’t developed yet, Reilly says the owner has to be actively engaged in building something on it.
“Sometimes, depending on what stage you're at, you may not be ready to, or in the position to do so. They may not have the financing to do it.
“One of my clients had a vacant lot that they've been looking at what to do with it. They're under some pressure to deal with it because of this bylaw. But all the trades are busy. They've had a hard time finding a satisfactory developer or architect that can give them what they need on the timeline they need to get around the implementation of the tax,” he adds.
In addition, Reilly says, there is looming liability ahead for purchasers of these properties in 2018.
“Under the Vacancy Tax, the declaration doesn't provide any protection to a purchaser. It basically does absolutely nothing. If a client is to buy a property in 2018, they're left with the risk that if the seller didn't use the property in 2017 for more than six months in any given year, the risk is that the property could be leaned by the City of Vancouver for that one percent tax.
“Realtors are now having to deal with this through indemnification clauses or holdbacks, which have, in my experience, largely been overlooked at this point for transactions that are closing in early 2018,” says Reilly.
Although he says the city did give property owners ‘ample time,’ as it started sending notices out in late 2016 to advise people of the tax and requirement to file, the problem is that it has left some individuals with little flexibility and few options.
“We have parties that have owned properties for 20 years and then, they decided they want to retire to the island but want to keep a property in the city. And they're stuck where they have no option but to sell a property or they have to give up part of their residence for a significant portion of the year.
“What the City of Vancouver has done was done with a lot more lead time than what the province did, but with no more forethought. There are a lot of complications that have not been thought out. And so, there are many people in the city who are now stressed and worried about how to deal with it.”