NOTE: The below article is a shortened version summarizing material information regarding the Empty Homes Tax. Click here for the full version including additional commentary and examples.
1. Vancouver's new Empty Homes Tax became effective January 1, 2017.
Targeting the approximately 10,000 year-round empty and 10,000 under-occupied homes in Vancouver, homes which are unoccupied for six full months of the year or more will be subject to the new 1% Empty Homes Tax (the "EHT") imposed by Vancouver's new Vacancy Tax By-law No. 11674 (the "By-law"). Homes that are determined or deemed to be vacant will be subject to an EHT equal to 1% of the property's taxable assessed value in addition to the existing property tax. The EHT will be applied annually, with the first taxation year beginning January 1, 2017. The tax for 2017 would be payable by April 2018.
2. Who won't be subject to the tax?
Most Vancouver homes will not be subject to the EHT. Residences being used as a principal residence by the owner, a family member or a friend for at least six months of the tax year will not be charged the EHT, nor will properties that are rented long-term (with a written tenancy agreement), for at least 30 days in a row for a minimum of six months in aggregate over the course of a year.
3. What is a vacant home?
A home is not a vacant home and thus not subject to the EHT when it is being used as a principal residence by the owner or the owner's family or a friend for at least six months of the year. The By-law has its own definition of what is a principal residence, which is not necessarily the same as other laws. The By-law provides that a principal residence is defined as:
The usual place where an individual lives, makes his or her home and conducts his or her daily affairs, including without limitation, paying bills and receiving mail, and is generally the residential address used on documentation related to billing, identification, taxation and insurance purposes, including without limitation, income tax returns, Medical Services Plan documentation, driver's licenses, personal identification, vehicle registration and utility bills."
A residential property is considered to be unoccupied in the following circumstances:
(a) the residential property is not the principal residence of an occupier; or
(b) the residential property is not occupied by a tenant or subtenant for a term of at least 30 consecutive days.
A residential property is considered to be a vacant property if:
(a) it has been unoccupied for more than 180 days during a calendar year period; or
(b) it is deemed to be vacant property in accordance with the By-law.
4. Pied-de-terres and snowbirds.
Many people maintain second homes in Vancouver some distance away from their primary residence. It may be a vacation home used for a few weeks a year, or purchased as a future retirement home. If the Vancouver home is their principal residence, it is not subject to the EHT. If their other home is their principal residence and the owner does not rent out their Vancouver home for at least six months of the year (or another exemption applies), their Vancouver home will be subject to the EHT.
5. Vacant residential land will also be subject to the EHT.
Any property, including vacant property, is potentially subject to the EHT if the property is classified as Class 1, Residential by BC Assessment. The City has decided to impose the EHT on vacant property to avoid owners "prematurely" demolishing homes and not promptly rebuilding a home on the property so as to avoid the EHT. This may catch a homeowner whose home consist of two 2 adjacent lots, with all of the improvements located on 1 of the 2 lots.
6. Apartment buildings.
If a building is not stratified and is one legal parcel and one unit is occupied, the whole building is exempt.
7. Annual declaration.
In December of each year, all owners of residential properties in Vancouver will receive instructions to complete a Property Status Declaration (a "PSD") from the City that must be completed and returned to the City on or before the 2nd business day of the following February. If the owner fails to submit the PSD, the property will be deemed to be vacant and subject to the EHT. The City may also pursue fines.
8. Tax notice.
The City will review the completed PSD and determine whether or not the property is subject to the EHT. Where a residential property is determined or deemed to be vacant, it will be subject to the EHT. The City will mail an EHT notice to each registered owner of a property that is subject to EHT by the end of the 2nd week of March each year. An owner who disputes the EHT notice may submit a complaint to the Vacancy Tax Review Officer regarding the City's decision to impose the EHT on the basis that an error or omission was made by the City, or by the owner in completing the PSD. The decision of the Vacancy Tax Review Officer can be further appealed to the Vacancy Tax Review Panel.
9. Deemed to be vacant.
A parcel of residential property is deemed to be vacant property and is subject to the EHT where the owner:
a) fails to file a PSD as required by the By-law;
b) makes a false PSD;
c) fails to provide the information or to submit required evidence to the Collector of Taxes in accordance with the By-law; or
d) provides false information or submits false evidence to the Collector of Taxes.
10. EHT due date and penalty.
The EHT is due and payable by the owner on or before the 10th business day of April of the year that the EHT Notice is issued. So the EHT for a property that was vacant in 2017 will be due in April of 2018. The EHT which is unpaid as of the 10th business day of April incurs a penalty of 5% and interest in the same amount as unpaid property taxes. The EHT together with any penalties will be added to the property tax roll.
11. EHT exemptions.
The By-law provides for 8 exemptions:
(a) Major renovations.
If the home is vacant because the property is undergoing major renovations, or is under construction or redevelopment (with permits), the EHT is not payable. The EHT is not payable if the residential property:
- was unoccupied for more than 180 days during the year in order to redevelop the property or safely carry out major renovations; and
- was undergoing redevelopment or major
- for which permits have been issued by the City, and
- which, in the opinion of the City's Building Official, are being carried out diligently and without unnecessary delay.
Any period when the home is empty but the permit has not yet been issued will not be considered for the exemption. The fact that an owner has applied for a permit and the City has not yet processed it or issued it, currently does not qualify for the exemption for the period prior to the permit being issued. The period while the home is empty, or the land remains unimproved, and does not have a valid permit, will be counted towards the 180 day vacancy period and it will be considered a vacant home and subject to the EHT if the 180 day period is exceeded.
The EHT is not payable if the residential property was unoccupied for more than 180 days during the year because the occupier, tenant or subtenant is undergoing medical care or is residing in a hospital, long term or supportive care. This exemption will not be allowed for more than two consecutive years.
(c) The owner is deceased.
The EHT is not payable if the residential property is unoccupied for more than 180 days during the year because the registered owner is deceased and neither a grant of probate of the will of the deceased, nor a grant of administration of the estate of the deceased has been issued.
(d) Ownership of the property changed during the previous year.
The EHT is not payable if the title of the property was transferred during the previous year. See Ed's complete article here for examples showing the mechanics of this exemption and additional commentary.
(e) Strata Rental Restrictions.
The EHT is not payable if the residential property was unoccupied for more than 180 days during the year because:
a) the residential property is a strata unit;
b) prior to the Vacancy Tax By-law being adopted (November 16, 2016), the Strata Corporation's bylaws restricted the number of strata units that could be rented; and
c) rental of the residential property is not permitted because the maximum allowable number of permitted strata rentals for the strata development has already been reached.
(f) Homes used for work purposes.
The EHT is not payable if the residential property is not the principal residence of a registered owner during the year, but it was occupied by a registered owner for a minimum of 180 days during the year because the registered owner works in the City of Vancouver. (Note: The By-law provides the workplace must be located in the City of Vancouver, not Metro Vancouver.) This exemption will be applicable in situations such as where the owner declares their home outside of Vancouver as their principal residence, but work in Vancouver and live in their home during certain work weeks.
(g) Court order.
The EHT is not payable if the residential property was unoccupied for more than 180 days during the year solely because a court order prohibits its occupancy.
(h) Restricted property.
The EHT is not payable if the residential property was unoccupied for more than 180 days during the year because the lawful use of the property is limited to vehicle parking, or as a result of the size, shape or other inherent limitation of the parcel, a residential building cannot be constructed on the property.
12. EHT applied. What now?
If a property is subject to the EHT and the owner wishes to avoid the tax, the owner may:
- Become a landlord by renting the property for a minimum of six months of the year, in periods of at least 30 consecutive days (ie. a month to month or fixed tenancy agreement);
- Enlist a property management firm to rent the property for the required duration, or consider a lease with a company (e.g. a business who has employees who work periodically on Vancouver, or a film company) who can sublease or license to individuals who will occupy the home for at least 6 months of the year for periods over 30 days;
- Invite a family member or friend to occupy the property as their principal residence for at least 6 months of the year. If the owner has a family member or friend occupy the unit, they do not have to pay rent but a rental agreement should be entered into confirming the terms of the tenancy and the occupier must occupy the property as their principal residence for at last 6 months of the year;
- Keep the property as-is and pay the EHT; or
- Sell the property.
13. Impact on Realtors.
Realtors acting for buyers and sellers will want to make inquiries of the seller as to the vacancy status of the property during the current and previous year. REALTORS acting for buyers will also want to consider inserting into the Contract of Purchase and Sale terms providing:
- that the seller must provide the buyer with a copy of the completed and filed PSD;
- that the seller will provide a statutory declaration at closing confirming the filed PSD is true and correct;
- an express representation and warranty confirming that property has not been vacant (as defined by the By-law) for more than 180 days during the current or prior year;
- providing that where the City has not yet determined if a property is subject if the EHT is applicable or not, provide for a holdback of the potential tax pending the City's determination;
- where the property is clearly subject to the EHT, provide that an adjustment to be carried out by the Buyer's conveyancer and the EHT will be borne solely by the seller; and
- Realtors who are licensed as strata managers must be aware of the way rental restriction bylaws impact the strata lots and EHT. This may over time result in changes to rental restriction bylaws and result in more administrative work on their part.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.