Alert, Vancouverites! There is a new tax you need to worry about – the Empty Homes Tax!
In a future blog post, I will discuss the implications of the Empty Homes Tax on people who are selling and buying homes in the City of Vancouver. For now, I will just focus on current owners of properties in the City of Vancouver.
1. What Is the Empty Homes Tax?
The City of Vancouver has implemented an annual tax on empty or under-utilized residential properties called the Empty Homes Tax.
Every owner of Class 1 Residential property in the City of Vancouver will have to make a property status declaration for the 2017 calendar year. This will determine if the property is subject to the Empty Homes Tax.
Class 1, Residential consists of: single-family residences, multi-family residences, duplexes, apartments, condominiums, nursing homes, seasonal dwellings, manufactured homes, some vacant land, farm buildings and daycare facilities.
2. What is the Amount of the Empty Homes Tax?
Properties deemed empty will be subject to a tax of 1% of the property’s assessed taxable value.
The Empty Homes Tax will be applied annually, with the first tax year beginning on January 1, 2017. The Empty Homes Tax will be calculated each year based off the property’s assessed taxable value in the previous tax year.
Payment of this year’s Empty Homes Tax is due April 16, 2018. By the end of the year, any unpaid Empty Homes Tax will be added to the property tax bill.
Late and unpaid Empty Homes Taxes are subject to the same penalties for non-payment as property taxes, including: A late payment penalty of 5%, daily interest on arrears, and potentially being part of a tax sale.
3. When do Registered Owners have to make a declaration?
The Empty Homes Tax Declaration for the taxation year of 2017 was originally due February 2, 2018, but the City of Vancouver recently pushed the deadline to March 5, 2018. I expect that for future Empty Homes Tax Declaration, the due date will be the start of February. People make the declaration online. They will receive an email, confirming whether the Empty Homes Tax is payable or not.
Failure to make a property status declaration by the due date will result in:
a) $250.00 penalty
b) The property being deemed vacant and subject to a tax of 1% of the property’s assessed taxable value
4. What is a “vacant” or “empty” home?
Properties are considered to be vacant if they have been unoccupied for more than 180 days during the tax year (Jan 1 – Dec 31).
Failure to make a property status declaration will result in a property being deemed vacant and therefore subject to the Empty Homes Tax.
5. What is a “principal residence”
A principal residence is the place where you usually live and make your home and conduct your daily affairs. This is the place where you receive mail and pay your bills from, including utility bills.
You would use the address of your principal residence for documentation like:
a) Income tax returns
b) Your driver’s licence or other pieces of identification
c) Insurance documentation
d) Medical Services Plan documentation
e) Vehicle registration
6. Second Homes
a. Principal Residence but did not reside in property for more than 180 days
If the property is the owner’s principal residence but they spend more than 180 days living elsewhere or travelling, the Empty Homes Tax will not apply because the property is the owner’s principal residence.
If a residential property is an owner’s principal residence then it is exempt from the Empty Homes Tax, regardless of how much time the owner actually occupies the property. To be exempt from the tax, the owner is not required to occupy the property for any period of time, as long as the property is their principal residence.
b. Not a Principal Residence but resided in property for more than 180 days
On the flip side, if an owner occupies his/her residential property for more than six months, but the property is not their principal residence, the Empty Homes Tax WILL apply.
The amount of days that a property is physically occupied by an owner, his/her family members or guests, does not determine whether the property is exempt from the tax.
If the property is not a principal residence or rented for at least six months of the year, and does not otherwise qualify for an exemption, it is considered vacant and the Empty Homes Tax will apply.
c. Second Home for work purposes
If an owner’s second home is not their principal residence but they live in the property to work in the City of Vancouver, the Empty Homes Tax apply will not apply.
The Empty Homes Tax will not apply if the registered owner occupied their second home for at least 180 days of the tax year because their work required a physical presence in the City of Vancouver. Their work must be full-time for this exemption to apply.
d. Principal Residence of Family Member
The property will not be subject to the tax if it is not the principal residence of the owner, but is the principal residence of his/her family member or friend for at least six months of the current year. The tax will apply if the property is used only periodically by the owner or his/her guests.
7. Rental Property
The Empty Homes Tax will apply if the property was not rented out for at least six months of the tax year, in periods of at least 30 consecutive days.
The City encourages owners to reduce the asking rental cost until the unit is rented because they will not be exempt from the tax on the basis of being unable to find a tenant.
8. Continuous Parcels
Adjacent parcels of land that share a property line or strata lots that have been joined by a permitted interior connection (such as a door or staircase) and are used as one residence will be treated as one residence for the purposes of the Empty Homes Tax.
The tax will not apply to any of the parcels, when adjacent parcels are:
– Used as a principal residence
– Rented out for at least six months of the year or qualify for an exemption from the Empty Homes Tax
– Owners will need to be prepared to provide information and evidence to demonstrate that the adjacent parcels are used as one residence.
The City may randomly select properties claiming any exemption for what they are calling “drive-by”, or “peak-over-the-fence” audits. If an owner claims a “continuous parcel” exemption, they may receive a notice that someone will be driving by just to confirm that the two lots are indeed right next to each other, that movement between the two lots is not impeded by a solid fence or other structure, and that the owner does not have a habitable structure on the second lot that is vacant (like a coach house or lane-way house).
9. Other Property Exemptions
1) Court Order: Properties that are empty for more than 180 days because of a court order, court proceedings or order of a governmental authority will not be subject to the Empty Homes Tax.
2) Strata Restrictions: The Empty Homes Tax will not apply to properties that were empty for more than 180 days because they are subject to a strata rental bylaw as of November 16, 2016, where the bylaw restricts rentals altogether or restricts the number of rental units, and the maximum number of units have been rented.
3) Limited Property Use: Properties that are unoccupied for more than 180 days because they are limited in use will not be subject to the Empty Homes Tax.
“Limited in use” means that the property is restricted for a specific use, such as vehicle parking, or the shape, size, or other aspect of the property precludes it from having a residential building constructed on the site.
4) Medical Care: A property that is unoccupied for more than 180 days of the year because the occupier is undergoing medical care elsewhere or is residing in a hospital, long term or supportive care facility will not be subject to the Empty Homes Tax
This exemption is not allowed for more than two consecutive tax years.
5) Property Uninhabitable: If a property is not used as a principal residence, rented for at least six months of the year, and does not qualify for an exemption, the Empty Homes Tax will apply. Under the current bylaw, there is no exemption for a property that is unoccupied solely because it is unimproved.
A property will not be subject to the Empty Homes Tax if the lands are vacant, a heritage property, or part of a phased development, and you have submitted an application to redevelop and permits are under review.
6) Under Construction: If a property is empty for more than 180 days because it was undergoing major renovations or redevelopment and all the necessary permits were issued, the Empty Homes Tax will not apply. The construction work must be carried out diligently and without unnecessary delay for this exemption to apply.
This exemption is only applicable to properties that are undergoing active construction where permits have been issued. Properties that are under construction, but their permits are pending, will be subject to the Empty Homes Tax.
Minor renovations do not qualify for an exemption.
It is the City’s view that there are many types of renovations that may make occupancy unsafe or impractical while work is underway. However, very few of these will require the property to be empty for more than 180 days. The vast majority of renovation projects can be completed in less than six months.
If a renovation project can be completed in less than six months, the property must continue to be the principal residence of the owner, a friend or family member, be rented out (in periods of 30 or more consecutive days) for at least six months of the tax year, or be eligible for one of the other exemption categories, to be exempt from the Empty Homes Tax.
7) Listed for Sale or Transferred: If a property was empty for more than 180 days of the year solely because it was listed for sale, the Empty Homes Tax will apply. There is no exemption for property that is empty solely because it is listed for sale.
A property listed for sale may be exempt from the Empty Homes Tax if legal ownership of the property changed during the current year.
The Empty Homes Tax will not apply to properties that have had a transfer of legal ownership during the tax year.
8) Owner Passed Away: If a property was empty for more than 180 days because the registered owner is deceased, and a grant of probate or a grant administration of the estate was pending, then the Empty Homes Tax will not apply.
10. Audit
False property status declarations will result in fines of up to $10,000 per day of the continuing offense, in addition to payment of the tax.
For up to two years after a taxation year, property status declarations will be subject to an audit process and if a property is selected for audit, the owner will be required to provide information or evidence in support of their declaration.
Types of information or evidence that may be required to prove a property is a principal residence include: Vehicle insurance and registration, Government-issued personal identification including a driver’s licence, BCID card, British Columbia Services Card, Medical Services Plan invoices, Income tax returns, Notices of assessment, Employment contracts or other records of employment, Pay statements, Insurance certificates for homeowners insurance
To declare that your property is rented, it must be occupied by a tenant for at least six months of the current year. This requirement can be met through either: A long-term lease (minimum of six months in duration); or, A combination of rental periods, each lasting 30 or more consecutive days, for a total of at least six months of tenancy
Types of evidence that can be submitted in support of a declaration include (but are not limited to): Tenancy agreement(s), Income tax returns or notices of assessment stating rental income, Bank statements showing reoccurring rental income, Insurance certificates for tenants insurance, Information from a long-term tenant proving occupancy
11. Suggestions
As you can see, the Empty Homes Tax is quite complicated.
To recap, please do the following:
- File the Empty Homes Tax Declaration before the due date: That is the most important thing to do. The consequences of not filing the Declaration on or before the due date are too high.
- If you are in a “gray area”, contact the City of Vancouver: If you have questions and/or you may be on the bubble, call the City of Vancouver for assistance on completing the Declaration. The staff there is very helpful and responsive. My experiences with dealing with them has been quite positive. Call 3-1-1 (or if you are outside Vancouver: 604-873-7000).
- File the Empty Homes Tax Declaration Truthfully: The consequences of the City of Vancouver auditing your Declaration and determining that it was filed fraudulent are hefty. File the Declaration to the best of your knowledge, even if you end up having to pay the Empty Homes Tax.
- Be Aware of Any Changes to the Empty Homes Tax: With this being the City of Vancouver’s initial implementation of the Tax, I suspect there will be some rather significant changes to this scheme over the course of the next few years. Be aware of those changes.
- File the Empty Homes Tax Declaration before the due date: I cannot repeat this enough.
For the most current information on the Empty Homes Tax, go to the City of Vancouver website:
http://vancouver.ca/home-property-development/empty-homes-tax.aspx
Finally, if you had any problems while filing this Declaration or if you have any suggestions to improve the system, call the City of Vancouver. The staff will welcome the feedback.
If you have any questions about this post, please contact Lewis Nguyen at lewis@dbmlaw.ca or 604-937-6373.