Don’t expect Speculation and Empty Homes taxes to increase rental stock in Vancouver

According to columnist Michael Geller, the intentions of the provincial and city taxes are unclear

By
Vancouver Courier
February 25, 2019





rent
According to columnist Michael Geller, it’s unclear whether the provincial and city taxes are intended as a substitute for income tax, a way to catch real estate speculators, an effort to bring vacant properties onto the rental market, or simply a cash grab to generate revenues for other housing purposes. Photo Dan Toulgoet

Do you know the fundamental differences between the provincial government’s so-called Speculation and Vacancy Tax and the city’s so-called Empty Home Tax (EHT)? Don’t worry, you’re not alone.

According to a recent op-ed in the Vancouver Sun by Josh Gordon, one of the architects of the provincial tax, the main purpose the tax has been missed in the media and disregarded by critics. So, what is its main purpose? To tax “millionaire” satellite households living in British Columbia, whose income is earned abroad, and are “dodging” their income tax responsibilities. Regardless of whether the property is vacant or not.

So, despite its name, according to Gordon, the Speculation and Vacancy Tax is not intended to catch real estate speculators nor turn empty homes into rental accommodation. Rather, it is to collect money from households who are not paying their fair share of income tax.

If this is its primary purpose, you might well wonder why there are separate tax rates for B.C. and Canadian residents. You might also wonder why the City of Vancouver is now considering modifying its tax to become more like the provincial tax.

I learned this from a local journalist who asked me to comment on a city staff report that is suddenly scheduled to go to city council this week.

It was prepared in response to a council directive at the end of January to review and improve the fairness and effectiveness of the EHT. 

Before we look at what “improvements” are being contemplated, it is worth studying some of the results of the EHT as set out in the city report.

When this tax was first proposed, we were led to believe there were anywhere between 10,000 and 25,000 empty homes that could be brought into the rental market. However, according to the report, the number of homes declared vacant, without valid reason, was 1,085 in 2017 and 922 in 2018 — 525 properties were declared vacant for both years.

The city expects to receive $38 million from these vacant properties. That equates to an average of $41,215 which equates to an average $4.1 million property. This is not going to be an affordable rental. Speaking of which, the report notes that a significant number of formerly vacant units did return to the rental stock. How many? 117. Yes, 117.

While I was hoping the proposed changes to the city’s tax would exclude legitimate second homeowners from having to pay the tax since their homes are not empty, instead only a few minor bylaw amendments are proposed for the 2019 tax year.

As shared with me by prominent real estate tax lawyer Noah Sarna, these amendments include narrowing the tenancy exemption to essentially exclude non-arm’s length tenants such as family members, expanding the exemption for a place left vacant because of the owner’s death and narrowing the exemption because of a sale during the year.

Sadly, the city ignored all of Sarna’s recommendations to make the tax fairer.

During the election campaign, the mayor advocated for an increase in the EHT from one per cent to three per cent. The staff report recommends exploring various options such as different rates for B.C. and other Canadian residents and foreign owners, different rates for different categories of properties and rates based on the number of years a property is left vacant.

The report also recommends that future amendments be the subject of further public consultation or internal analysis before a recommendation is made.

Public consultation or internal analysis?

Hopefully there will be public consultation since these and no doubt other proposals are significant and ignore those who have long questioned the fairness and efficacy of this tax.

Now, in answer to the fundamental differences between the provincial and city taxes, the provincial Speculation and Vacancy Tax is levied on individual property owners as opposed to the EHT which is a tax on the actual property.

However, what is not clear to many of us is whether these taxes are intended as a substitute for income tax, a way to catch real estate speculators, an effort to bring vacant properties onto the rental market, or simply a cash grab to generate revenues for other housing purposes.

 

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