If you are buying a house, Vancouver’s Empty Homes Tax, also referred to as the Vacancy Tax, may unexpectedly apply to you.
In 2017, after the Vancouver City Council passed the controversial Tax By-Law, dozens of homeowners and buyers have come to my office asking about whether it applies to them.
The answer is not always clear, which can be particularly unsettling at the time of a real estate transfer. The new home buyer may be unknowingly responsible for paying a $10,000+ tax up to 2 years into the future. Ouch!
In this guide, we explain this tax in simple English so that all homeowners and buyers understand what it is and whether it applies to them.
We also outline a solution that ensures no home buyer is caught with an unexpected tax up to 2 years after they purchased a house.
WHAT IS THE EMPTY HOMES TAX?
The Empty Homes Tax, also known as the Vacancy Tax, applies to residential properties within the City of Vancouver that:
Have been vacant for six or more months during a calendar year, or;
Has not been rented out for 30 or more consecutive days.
The Vacancy Tax was set up for two reasons:
To make empty or under-utilized properties available for long-term rental, and
To help relieve pressure on Vancouver’s rental housing market, given low rental vacancy rates and high rental costs.
The bylaw was passed by the city council in December 2016, in a context in which rental prices were soaring and more than 25,000 properties within the city remained empty or under-occupied.
The tax looks to incentivize rentals, and the net revenues from the Vacancy Tax will be reinvested into affordable housing initiatives in order to continue providing solutions to Vancouver’s housing crisis.
The rate of the Empty Homes Tax is 1% of a property’s assessed taxable value. It is an annual tax that is applied on a yearly basis. This means that for every $1 million dollars of value, the vacancy tax will be $10,000 a year.
WHO DOES THE EMPTY HOMES TAX APPLY TO?
Any non-principal residences within the City of Vancouver that are left empty for six months of the year or longer will have to pay the Vacancy Tax.
If your property is located in a municipality that does not fall within the city, such as the University Endowment Lands, Burnaby, or Surrey, the tax will not apply to you.
According to the City of Vancouver, this will only apply to a category of homes known as Class 1 Residential, which includes “single-family residences, multi-family residences, duplexes, apartments, condominiums, nursing homes, seasonal dwellings, manufactured homes, some vacant land, farm buildings, and daycare facilities.”
If your property is within the boundaries of the city of Vancouver but is not solely classified as a Class 1 residential property, the Vacancy Tax will not apply, and you are not required to make an annual property status declaration.
Some exceptions to the tax exist. They include, but are not limited to properties that:
Are not a principal residence, but were occupied for at least 180 days of the year because you worked in the city of Vancouver.
The owner or the tenant was receiving long-term, inpatient, medical, or supportive care.
The registered owner was deceased, and a grant of probate or administration of the estate was pending.
The title was transferred during the year.
Were undergoing redevelopment or major renovations where permits:
had been issued and were being carried out diligently and without delay, or
were under review for redevelopment of vacant land or the conservation of heritage property.
Are under a court order, court proceedings, or an order of a governmental authority prohibiting occupancy.
HOW WILL THE TAX BE IMPLEMENTED?
Every year, Vancouver homeowners will need to make an annual property status declaration. This will include the valuation of the property and state whether or not the property was vacant for six months or more during the previous fiscal year.
The declaration will then be used to determine whether or not the property will be taxed.
All declarations for the 2017 fiscal year must be made between December 1, 2017, and February 2, 2018. Failure to do so will lead to the imposition of the tax, as well as a fine that may reach up to $10,000 per day of non-compliance.
False reports can also lead to a $10,000 fine for homeowners.
According to a report published by Global News earlier this year, a City of Vancouver spokesperson said that “property status declarations will be subject to a rigorous audit process, in line with best practices for provincial and federal tax programs.”
This means that homeowners should definitely comply with the law and be truthful in their declarations.
WILL UNPAID TAXES BE TRANSFERRED TO A NEW BUYER?
Buyers may have to pay taxes owed on a property after they purchase it.
According to the bylaw, if you purchase or inherit a property that has an unpaid Empty Homes Tax, you will not have to pay the one percent tax for that fiscal year.
If it is found that it should have applied to previous years, that tax will be added to the property tax account associated with that property and “run with the land.”
However, you’ll still have to present an annual property status declaration.
THE SOLUTION WE’VE FOUND TO THE POTENTIAL TAX PROBLEM
An audit for the previous year could take place 1-2 years after your home purchase is completed.
Even if you know that the seller lived there, it may be impossible to find them to sign an affidavit and provide the evidence required. This could be problematic.
We have seen several times where relations between buyer and seller are strained during the property transaction and negotiations. How do you know they will cooperate with an audit?
As BC Notaries, we are asked to provide our final report that the buyer owns the property free and clear of previous incumbents. This is a new challenge in how we can now do that under the cloud of vacancy tax as the audit time is in the future and the tax liability stays with the homeowner.
The penalty goes to the individual (the previous owner), but the tax, if unpaid, goes to the land.
Neither the City of Vancouver nor the real estate (salesperson and legal) community has done a great job at finding a convention on how we can deal with this. With every real estate transaction, there is a potential that people are arguing about the Vacancy Tax.
This is an evolving area without a set of generally accepted legal industry practices. To protect buyers, we have a few new steps for City of Vancouver purchasers.
1. CONFIRM TAX STATUS
Ensure that declarations are made and taxes are paid or held back until the declaration is made.
2. PROTECT THE BUYER AND LENDER FROM A FUTURE TAX
Where the contract is silent on who is going to deal with the issue of Empty Homes Tax, we need to find something that has certainty.
We have worked with the title insurance companies to confirm protection, and most title insurance policies will protect buyers and lenders from the result of an unfavorable audit for the previous year’s declarations.
The cost of title insurance depends on the price of the property. Here is a Policy Calculator for Stewart Title. The cost and coverage between title insurance companies are about the same.
While title insurance is an increased cost, we can find something that delivers certainty as well as providing protection in several other areas as well. We urge all buyers to now purchase “owner policy” title insurance.
Many lenders already insist on getting title insurance to cover the mortgage.
The Vacancy Tax isn’t mentioned in the contracts of purchase and we receive. We can’t have variables. We urge our purchasers to follow our advice and purchase owner’s policy title insurance.
Purchasers do have a choice, and our clients can refuse to buy title insurance. In such cases, we will provide a waiver, and we can confirm the risk lies solely with the purchaser. They agree that we accept no liability for unpaid taxes or risks that would have been covered by title insurance.
Overview of the Empty Homes Tax: Introduced in Vancouver in 2017, the Empty Homes Tax, also known as the Vacancy Tax, targets residential properties within Vancouver that are vacant for six or more months during a calendar year or not rented out for 30 or more consecutive days.
Purpose of the Tax: The tax aims to alleviate pressure on Vancouver’s rental market by incentivizing the rental of empty or underutilized properties. The revenue from the tax is directed towards affordable housing initiatives in Vancouver.
Tax Rate: The tax is set at 1% of the property’s assessed taxable value, meaning a $10,000 tax per year for every $1 million in property value.
Applicability of the Tax: The tax applies to non-principal residences in the City of Vancouver left empty for over six months per year.
Implementation and Compliance: Homeowners must annually declare their property status, indicating whether the property was vacant for over six months. Failing to declare or submitting false reports can lead to significant fines.
Impact on New Buyers: Unpaid taxes may transfer to new buyers. To mitigate the risk of the Vacancy Tax, buyers in Vancouver should confirm the tax status, ensure compliance, and consider purchasing an “owner policy” title insurance for protection against potential future tax liabilities.
HAVE ANY QUESTIONS?
If you still have questions regarding the Empty Homes Tax and for more information about buying real estate in the City of Vancouver, please call or email us. We are happy to assist you directly or to provide a referral to a notary or lawyer in your area.
David Watts, BC Notary
Clinton Lee, BC Notary
David Watts Notary Corporation
Phone: 604 685 7786