Cottage owners in Western Canada should take note, B.C. is expanding its speculation and vacancy tax to six new regions within the province.
Starting January 2023, property owners with vacant residences in the municipalities of North Cowichan, Duncan, Ladysmith, Lake Cowichan, Lions Bay, and Squamish will be subject to the tax.
The speculation and vacancy tax was first introduced in 2018 as a way to discourage investors, specifically foreign investors, from buying up multiple B.C. properties, limiting supply and driving up prices.
The tax currently applies to municipalities in the Greater Vancouver Region, Lower Mainland and southern Vancouver Island, Abbotsford, Chilliwack, Kelowna, West Kelowna, Nanaimo, and the District of Lantzville. Under the tax, B.C. residents who own a vacant home in one of those areas must pay 0.5 per cent of their property’s assessed value annually, while foreign owners and satellite families (individuals who earn the majority of their income outside of Canada) pay two per cent annually.
The decision to expand the number of taxable regions was, in part, because those real estate markets were being advertised as appealing alternatives to the already taxed regions, putting housing pressures on the communities, said B.C. Finance Minister, Selina Robinson, during a press conference.
“We kept an eye on how this tax unfolded,” she said. “There was good analysis and recommendations on where else this might need to be expanded given the pressures outside urban centres.”
According to a report commissioned by the B.C. government, the tax has helped add approximately 20,000 condo units to the Metro Vancouver market, and generated $231 million towards affordable housing in its first three years.
Despite these accomplishments, some feel the tax isn’t solving the main issue. “The spec tax has had little to no impact on greater Vancouver real estate,” said Denny Dumas, a Vancouver realtor. “The percentage of homes and condos that are foreign owned and sitting vacant is so small in the big scheme of things. Our big problem in greater Vancouver is supply. The amount of people wanting to live and invest in greater Vancouver far exceeds the supply. And municipalities’ processes to approve permits and add density is 10–20 years behind population growth. I don’t think any policy will really help the prices of housing long term. It’s pretty simple actually, we just need more housing.”
There’s also concern that groups, such as cottagers, are being unintentionally targeted by the tax. In 2019, six B.C. residents launched a lawsuit against the tax. One of the plaintiffs was a 72-year-old woman who’d lived in a house outside of Victoria since she was five. She and her husband now split their time between Texas and B.C., using the B.C. house as a vacation property. But with a primary residence in Texas, they were considered a satellite family subject to the tax.
The overall number of cottagers affected is minimal, but those hit do see significant increases to their taxes. The couple who owned the house in Victoria, for instance, were expected to pay an additional $6,000 per year. The tax’s new expansion will force a handful of B.C. residents who own cottages in Lake Cowichan to start paying the tax in 2023.
“I talked to one gal this weekend,” said Jennifer Allen, a Lake Cowichan realtor. “She came by an open house of mine, and she said she will be one of the people affected because she’s right in the town of Lake Cowichan on Point Ideal where there are probably about 40 lakefront residences.”
To avoid being taxed, a property must be occupied for six months of the year. The property can be occupied by the owner, a family member, or a long-term renter. When asked about cottagers, the Ministry of Finance said that if a cottager wanted an exemption from the tax, they should use the property as their principal residence or rent it out for six months.
Cottages only accessible by water do qualify for an exemption. And the provincial government does offer a $2,000 tax credit to B.C. residents who own a secondary property. This covers the speculation and vacancy tax of a property valued at less than or equal to $400,000. If the property’s value is above that, cottagers will have to pay.
In terms of further tax expansion, specifically to areas such as Whistler and the Gulf Islands, notorious for foreign buyers and short-term rentals, the ministry of finance said: “We are taking a phased approach with the speculation and vacancy tax, and we will continue to monitor the housing markets in areas like Whistler, the Gulf Islands, and other areas of the province to determine whether further changes are required.”