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BC SPECULATION AND VACANCY TAX INTRODUCED

The provincial government of British Columbia has introduced legislation which will tax those individuals who own multiple homes in certain areas of British Columbia.

Originally titled as the “BC Speculation Tax”, it has been renamed as the “BC Speculation and Vacancy Tax”.

It will apply to those who own multiple properties in Metro Vancouver, the Capital Regional District (excluding the Gulf Islands and the Strait of Juan de Fuca), Kelowna, West Kelowna, Nanaimo, Lantzville, Abbotsford, Chilliwack and Mission.

The tax rate on homes will vary depending on the taxation residence of the homeowner. In 2018, both Canadian residents and non-residents will pay a tax of .5% of the assessed value per home per year.

In 2019, the rate for Canadian residents will remain at .5%, whereas the rate for non-residents will increase to 2%.

It is estimated that approximately 2/3 of the people who will be paying the tax will be from British Columbia.

Homeowners can avoid the tax if they rent out the property for at least six months in the year. There is also a credit available for residents of British Columbia which would apply to the first $400,000 of assessed value in the home, which will reduce the tax payable by $2,000 per year.

Municipalities had argued for the option to decide if they wanted the speculation tax to apply in their community. The provincial government denied this request.

Developers working on housing projects, as well as individuals suffering medical emergencies, moving to a residential care facility, or suffering a marriage breakup are also exempt from the new tax.

As well, if a spouse is required to have a second home which is closer to their place of employment by 100km, they will also qualify for the exemption. Several other minor exemptions are also available.

Homeowners in the designated areas will receive forms in the mail in February 2019, at which time they will have to declare whether the property is their primary residence. If it is rented out, they will have to declare the length of time it was rented out in the year.

Provincial Education Credit Eliminated… (Again)

There has been another change to the education tax credit for students in British Columbia. As discussed in the Autumn  newsletter, the previous  provincial government had planned to eliminate the provincial education  tax credit. When the  new government came to power, they cancelled the plans for eliminating this credit. However, in the provincial budget  this spring, it was announced once again that the credit would be eliminated, as of January 1, 2019.

Short Term Accommodations Taxed

Effective October 1, 2018, new rules will be in place for short term accommodation providers in British Columbia.

As of that date, unless an owner is listing their property on an online accommodation platform such as Air BNB, or they have an exempt property, they must be registered for Provincial Sales Tax (PST), and if applicable, Municipal Regional and District Tax (MRDT).

The rate of tax for PST is 8%, and the MRDT can be up to 3%. If the provider is registered on an online accommodation platform, the platform will start collecting the taxes for them.

In the past, there were exemptions available if a provider had less than 4 units of housing available. This exemption will be removed when the new rules come into place.

It will be replaced by an exemption from registration for providers who have revenue of less than $2,500 in the last 12 months, can reasonably expect to have revenue of less than $2,500 in the next 12 months, and are not registered on an online accommodation platform.

Long term accommodations are still exempt under the new rules. However, there has been a reduction in the number of days needed to qualify for this exemption.

Previously a unit had to be rented for a month to be considered long term accommodation. Under the new guidelines, the rental property only has to be rented for 27 days to qualify.

Online classified listings and listing services that do not collect tax on behalf of the owner are not online accommodation platforms for the purposes of the new regulations.

Providers may also need to charge Goods and Services Tax on their accommodations. There have been no changes to these regulations.

Small Businesses Untouched

Pie charts and percent

In the recent provincial budget, the provincial corporate tax rate increased from 10% to 11%. This rate applies to all companies which earn over $500,000.

For small companies who earn less than $500,000, their provincial corporate tax rate has not changed from 2.5%. Combined with the federal corporate taxes, small companies pay a total income tax rate of 13.5%.

Higher Incomes, Taxes

A temporary tax measure has been introduced for the 2014 and 2015 tax years, in order to increase the amount of tax paid by those earning the highest incomes in British Columbia.

Taxes, money

Currently, the highest tax rate in BC is 43.7% on income earned over $135,034. Starting in 2014, an additional tax bracket will be added with a tax rate of 45.8%, for those people earning over $150,000. This follows a global trend to increase the amount of tax paid by the highest income earners.

Because it is a temporary tax measure, and one not planned for the current year, it does offer some tax planning opportunities. If you know that your income will be over $150,000 in both 2014 and 2015, it may make sense to hold off on claiming your RRSP deduction in 2013, reporting it in 2014, instead.

In 2012, Ontario added a tax bracket for incomes earned over $500,000, and, in Europe, the French government has been attempting to implement a 75% tax on annual earnings exceeding one million euros.

If you are going to claim an RRSP deduction of $10,000, the deduction will be worth an additional $210 if you claim it on your 2014 tax return rather than your 2013 tax return.

If you are going to report dividends from your company, it may make sense to report those dividends in 2013 or 2016, if they would otherwise bump your income over $150,000 in 2014 or 2015.

Photo credit: http://www.bcliberals.com/news/economy/your_taxes_by_the_numbers