What Would the Vacancy Tax Mean For Me If I Buy an Investment Property in Vancouver?

Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.

Q: I'm thinking about buying an investment property in Vancouver. What should I know about the vacancy tax?

The vacancy tax applies to any owner of residential property in Vancouver, regardless of Canadian residency, said Michael Drouillard, an attorney with Harper Grey in Vancouver.

This Empty Homes Tax,  passed last November by Vancouver, was designed to increase the number of housing units on the market in a city where available rentals are practically nonexistent. Homeowners must declare whether their home is unoccupied and, if so, make their first payments of the tax next year.

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The vacancy tax stipulates that residential properties unoccupied for 180 days or more during the year incur an annual tax equal to 1% of the value of the home, payable on or before the 10th business day of April of the following year (April 16 in 2018), said Riley R. Burr, a partner at the Vancouver law firm of Norton Rose Fulbright.

"An unoccupied home is one that is neither the principal residence of an owner or friend or family member permitted to live there by the owner, nor occupied by a tenant for a rental term of at least 30 consecutive days," he said.

"Brief-stay Airbnb rentals don’t count," Mr. Drouillard said, because they are typically shorter than 30 days.

Property owners who fail to meet the requirements of an occupied home and who don’t pay the vacancy tax could face a penalty of 5% of the property’s assessed value. For example, a home assessed at $1 million would incur a penalty of $50,000 in addition to $10,000 for the vacant home tax, Mr. Drouillard said. Late payments are subject to a penalty of 5% of the vacancy tax, which would be $500.

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"All of these fees and taxes are charged against the property. So if they remain unpaid, the city can force a sale of the property to recover what it is owed," Mr. Drouillard said.

Exemptions to the vacancy tax include instances of when major renovations are being made, when certain condo restrictions apply, when a long-term medical stay is required or when the property has been bought or sold in the year, Mr. Burr said.

The vacancy tax bylaw gives the city of Vancouver audit powers, Mr. Drouillard noted. Therefore, it will probably investigate reports from neighbors or others that a property is vacant.

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