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Vancouver is set to increase its controversial Empty Homes Tax to 1.25 percent as of January 1, 2020, a 25-percent jump on a levy statistics indicate has failed to alleviate the city’s housing crisis.
For a residential property owner with an empty house valued at $850,000 in 2020, the increase would see them pay $12,750 in 2021, up from $8,500 the previous year.
In 2017, Vancouver became the first city in Canada to implement an empty home tax in response to a housing crisis arising from having the lowest vacancy rate of rental homes in the country (see MNP blog here). Then Vancouver mayor Gregor Robertson believed the tax would motivate owners to put vacant property on the rental market, increasing housing opportunities in the city.
Although the city has since collected $40 million of empty home tax revenue, recent statistics suggest the move was not successful. The number of rentals in Vancouver dipped in 2018 from 2017, according to a report by Canadian Mortgage and Housing Corporation (CMHC).
“The number of condos in long-term rental declined by 1,081 units as investors sold or repurposed their properties,” the November 2018 report stated. “As a result, the proportion of condos being rented declined to 24.5 percent in 2018 from 25.8 percent in 2017.”
Here is an example of why the tax has failed in its objective. Property Owner Smith lives in a condo building in Vancouver. Most of the units on the floor are occupied by families, some owners, some renters. One of the units is owned by a retired couple who live elsewhere in B.C. The couple keeps the condo for personal use when they visit Vancouver. Their total occupancy is less than 180 days a year.
With the implementation of the empty home tax, this unit would be subject to the tax. The couple now has a choice — put the condo in the rental market and use a hotel when they come visit Vancouver, sell the unit or pay $10,000 or more of empty home tax every year. What they ended up doing was “renting” the unit to their son’s girlfriend who just started to attend university. On her own, she likely would have shared a home with some friends, instead of choosing a two-bedroom condo for $2,500 per month. But having her in the unit with a rental agreement avoided the $10,000 per year empty home tax, and the couple still had use of their condo when they visited.
There are many such examples MNP has come across since the tax was implemented in 2017 and none of them have resulted in a home being put into the rental market. Some owners have chosen to pay the tax, some have put an “unrelated tenant” in their home and a few have decided to sell the home. With the increased tax rate, this trend will likely continue.
For more information contact Angela Chang, CPA, CGA, CAFM at 604.685.8408 or [email protected] or your local Tax Advisor.
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