BC’s Speculation and Vacancy Tax Act

Posted on December 7, 2018December 7, 2018

The following is an article by two lawyers at BLG in Vancouver, reprinted with their permission. Where I have added commentary I start with my initials “PDM:”

The speculation and vacancy tax is different from the City of Vancouver’s Empty Homes Tax, which is a municipal levy. If you own residential property in Vancouver, you may have to pay both taxes.

The provincial tax affects property in the following areas, according to the government website:

municipalities within the Capital Regional District
municipalities within the Metro Vancouver Regional District, excluding Bowen Island, the Village of Lions Bay and Electoral area A, but including UBC and the University Endowment Lands
the City of Abbotsford
the District of Mission
the City of Chilliwack
the City of Kelownaand the City of West Kelowna
the City of Nanaimoand the District of Lantzville

Reserve lands, treaty lands and lands of self-governing Indigenous Nations are not part of the taxable regions.

Islands that are accessible only by air or water are not part of the taxable regions.

Some residential properties are excluded from the speculation and vacancy tax, even though they are located within a taxable region. These include residential properties owned by:

an Indigenous Nation
municipalities, regional districts, governments and other public bodies
registered charities
housing co-ops
certain not-for-profit organizations

Here is the BLG article:

A new Speculation and Vacancy Tax Act was recently passed by the B.C. legislature and received Royal Assent on November 27, 2018. The new tax is an annual tax on residential property located within B.C.’s major urban centres. Don’t let the name fool you — the tax is more of a vacancy tax on underutilized properties than it is about speculation. Accordingly, those that do not consider themselves speculators may still be subject to the tax. Foreign owners and individuals living in B.C. but with a spouse working abroad are also targeted.

Property owners within the City of Vancouver may already be familiar with the city’s empty homes tax. These property owners should not expect uniformity between the two tax regimes; these are distinct taxes enacted by separate laws, each with its own distinct exemptions and requirements. Being exempt from one does not necessarily mean that you will be exempt from the other.

PDM: As I note above, property owners in the City of Vancouver may face both taxes.

We outline some key information below.

Deadline for new property declaration

Property owners will have to make an annual declaration with the first being due by March 31, 2019 in respect of the 2018 calendar year. If any speculation and vacancy tax is owing, payment will be due by July 2, 2019.

PDM: This is the date property taxes are also due.

The declaration can be completed online or over the phone. The registration system is expected to open on January 18, 2019.

PDM: Here is the link to the Declaration. It is exceptionally important to note that all residential property owners in areas affected by the tax will receive an annual declaration form from the government (estimated to be in mid-February), and all owners will be required to complete the form, whether or not they may be subject to the tax.

Foreign owners and satellite families

One of the province’s purported tax target is foreign owners and satellite families. Foreign owners are property owners who are not Canadian citizens or permanent residents. A satellite family is an individual, together with his or her spouse, who do not report a majority of their income on a Canadian tax return.

If you have a spouse who lives, works and pays tax in a jurisdiction outside of Canada, you will need to carefully consider these rules; their application will result in stricter conditions to claim exemptions and higher tax rates on vacant property.

Ownership structure

Where there are multiple owners on title, each owner will be required to file a property declaration.

Where the owner is a corporation, a partner of a partnership or a trustee of a trust, you will need to look through these entities and carefully consider the individual(s) that have the ultimate interest or control in the property. If any such individual(s) is a foreign owner or member of a satellite family, this will have implications for claiming exemptions and on the tax rate you pay. Even where such an individual resides within Canada but outside of B.C., this may jeopardize the availability of certain exemptions.

PDM: Previously, the BC Government enacted a new regulation pertaining to the disclosure of Beneficial Ownership of Real Property. You can read more about it in our article via this LINK

Tax rates

All owners of vacant properties, regardless of residency or citizenship, will pay tax at a rate of 0.5 per cent for the 2018 calendar year.

Beginning in 2019, the tax rate on vacant property is 0.5 per cent for B.C. residents and Canadian citizens or permanent residents. Foreign owners and members of satellite families pay a 2 per cent rate.

The tax is calculated as a proportion of the assessed value of the property, which can be determined by searching your address on the B.C. Assessment website.

Exemptions

All owners of residential property within a specified region will pay the speculation and vacancy tax unless an exemption can be claimed. There are a number of exemptions available, each which require specific conditions to be met. The most common exemptions will include where a property was used as a principal residence, was rented out to a tenant (note that short-term rental arrangements do not qualify), where construction of a new home or substantial renovations were carried out, or where the property was acquired within the year.

The specific requirements for each exemption should be carefully considered with special attention being paid to defined terms and interpretive rules. This is especially true where the owner includes a corporation, partnership or trust, or where any foreign owners, members of satellite families or non-B.C. residents are involved.

PDM: Please consult a competent real estate lawyer, such as the authors of this article (below).

Tax credits

Those that must pay the speculation and vacancy tax may be able to claim a tax credit on any income they have in B.C.

Authors

Scott Gorski Peter J. Glowacki
SGorski@blg.com PGlowacki@blg.com
604.640.4031 604.632.3507

WHILE YOU ARE HERE:

Tim Down and I wrote an excellent ebook called How to Successfully Appeal Your BC Property Assessment. It is specifically for residential property owners in BC.

In it we show you how the assessment process works, how you can research if you should appeal your assessment, how to craft your submission so you have the highest probability of success and how to present that submission. All in a proven step by step format that I have personally used to save hundreds of dollars in my own residential property tax.

You can find it HERE.

We Are Relocating

Posted on June 19, 2018June 19, 2018

We are moving offices effective July 4, 2018

Our new address is #116, 9072 Fleetwood Way, Surrey, BC V3R oM6

Our new phone number is: 604-839-4479

The new phone number is effective immediately.

Our email addresses remain the same.

Greenstead Consulting Group Expands Services to the USA with Bespoke Real Estate Advisors Network Affiliation

Posted on May 10, 2018May 10, 2018

Peter D. Morris, CEO of the commercial real estate advisory firm Greenstead Consulting Group announced today an affiliation with the Bespoke REA partnership team based in San Francisco, USA.

“We are very excited and proud to start this association with Bespoke Real Estate Advisors,” said Greenstead Founder and CEO Peter D. Morris. “They share our commitment to performance for our customers with a wide range of services, conducted by people who are passionate about creating client centric and sustainable results. Our existing clients will benefit from the knowledge and reach of the Bespoke network. We also believe our unique and complementary services and structure will benefit all Bespoke clients.”

“With significant investment and occupier focus transcending the border between our two countries, Canada is integral to our global coverage,” said Bespoke Real Estate Advisors Founder and CEO Robert Bagguley. “From the moment Ed Wlodarczyk (Bespoke Founding Team Partner and COO) made the introduction, it was clear that the Greenstead model and Peter’s stellar reputation were in perfect alignment with Bespoke and our goal of providing uniquely customized, high-level real estate solutions. The partnership with Greenstead will ensure quality and enhance our footprint as we continue to grow and expand our presence in Canada.”

For more information about Bespoke Real Estate Advisors, visit www.bespokerea.com.

New Leasehold Advisory Client Announcement

Posted on May 7, 2018May 7, 2018

The Greenstead Consulting Group secured a contract to provide lease audit services for the corporate stores of Anytime Fitness, a franchised fitness business headquartered in Minnesota, USA.

According to the CEO of Greenstead Consulting Group, Peter D. Morris, this is part of a comprehensive lease management service that will be extended to the system’s franchisees across North America.

“Our Leasehold Advisory real estate service provides occupier/tenant, independent business people with the same quality of service as one would find in a large real estate department of an international chain,” said Morris. “Tenants, of all sizes, now understand that managing their real estate is not a lease transaction every 3-5 years. It is a major part of their business, and that needs to be properly planned, implemented and monitored on a continual basis between those transactions. We act as their in-house real estate department.”

Morris noted that a tenant’s lease obligation is typically one of the top three expenses a company incurs; yet most entrepreneurs don’t have real estate expertise. That was the reason he created the service, based on his three decades in the industry.

The unique service model Morris developed allows independent tenants and small chains to obtain a bundle of services on a subscription and a la carte basis. For example, Greenstead Consulting Group will manage ongoing lease management services for a small annual fee; while handling infrequent larger issues, such as a tenant relocation negotiation, or estoppel verification, on an hourly basis, and as the need arises. This saves our clients money and provides a great return on their investment.

Real estate is only a function, or a component, of the entrepreneur’s business that allows the businessperson to conduct their business, whatever business that may be. But he noted that the landlord’s business is only leasing real estate. Morris fervently believes all tenants should proactively manage their leases in order to save money and reduce risk. “This is a very cost effective way to accomplish that”, he said during the interview.

“The Anytime Fitness franchisor recognized that they could provide enhanced services to their franchisees, who are typically the tenant on the lease,” said Morris. The franchisor already provides brokerage services, whereas Morris’ firm fills in all the other areas related to the franchisee’s real estate.

The lease audit service Morris’ company is providing to the corporate locations reviews the landlord’s billings to the tenant against the provisions of the lease. Greenstead Consulting Group then discusses the review with the landlord and seeks a refund, if a billing error is found. There is no downside risk to the client since lease audit service fees are contingency based; meaning the client doesn’t pay unless an error is found.

It is one component of the Leasehold Advisory service package offered by Greenstead Consulting Group.

To learn more about the services we can provide tenants with even just one location CONTACT US.

New Client: Medicine Hat Real Estate Board

Posted on March 27, 2018March 27, 2018

We are very proud to now be associated with the Medicine Hat Real Estate Board. This small board has contracted with Greenstead Consulting Group to present a number of commercial real estate courses in 2018. In order to keep the client’s budget restrictions in mind we have developed two types of courses:

A series of six or seven, one-hour daily webinars held consecutively (Monday to Friday) to cover longer courses such as the Masterguide to Leasing program; and
short one-hour webinar courses, such as the Masterguide to Writing a Leasing Letter of Intent.

By using a webinar format the Medicine Hat Real Estate Board saves on the travel, accommodation and meal expenses typically associated with an in-person training event. It also makes participation in the courses very affordable for their members.

During the series courses, participants have email access to the instructor during the run of the course schedule to ask questions and obtain clarifications. This creates an intimate Q&A session between the instructor and each participant, where the participant doesn’t feel embarrassed by asking their question. This is a common participant concern when they are in front of peers during an in-person event.

Participants receive email access to the instructor for the first 12 hours after the short, one-hour webinars for an individual Q&A session.

Members of the Medicine Hat Real Estate Board will register with the board directly for the courses they wish to take, and pay the Board their registration fee. The Board retains a portion of the registration fee for their promotion of the courses and the administration of the registration process.

The Board has no other costs as all other logistical costs, such as the webinar hosting, are borne by the Greenstead Consulting Group.

Please CONTACT US if you would like to learn how we can create a similar program for your Real Estate Board or Association.

Supreme Court Case Has CRE Implications

Posted on February 21, 2018February 21, 2018

NOTE: I am not providing legal advice with this article. Please consult with a lawyer to determine the actions you may wish to take.

This past week the Supreme Court of Canada heard arguments in what is called the Redwater case. It’s expected that the Court will render its decision over the summer. At the heart of the court case is the question of bankruptcy and creditor priority versus the environment and environmental clean up.

Redwater was an insolvent oil company with approximately 70 wells operating throughout the province of Alberta. The primary lender to the company, ATB Financial, and the trustee argued that under Federal bankruptcy law the trustee in bankruptcy could sell the profitable assets and disclaim the well leases that were unproductive. This left the unproductive wells to the Orphan Well Association (OWA), an association funded by the oil industry and charged with decommissioning and cleaning up abandoned wells in Alberta. Part of their argument was Federal bankruptcy laws trump provincial environmental regulations. The lower courts appeared to agree on that point.

On the other side of the table, the provincial government argued that Redwater must clean up environmental hazards and any monies derived from the sale of assets should first and foremost go to the underfunded OWA to expedite the decommissioning of the abandoned wells.

As background to the case it should be noted that these wells are located on third-party agricultural land and the oil company had the right to install these wells so long as they paid a royalty or rental fee to the landowner. In this complicated case the lower courts ruled in favour of the trustee in bankruptcy meaning they could to pay the primary creditor (ATB) first and leave the abandon wells to the OWA to clean up.

Unfortunately, in Alberta there are approximately 1600 abandon wells and another 1500 underperforming wells. This means it could be decades before all the abandoned Redwater wells are decommissioned. This, according to the province and affected farmers, poses environmental, financial and health risks.

There is the argument that the lower courts decisions would give oil companies an ability to organize their affairs so they do not have to take responsibility for their drilling.

It is believed that the Alberta Energy Regulator erred by not requiring oil companies to post bonds or insurance to cover the decommissioning of abandoned wells.

So what does this have to do with commercial real estate?

If the Supreme Court upholds the two Alberta provincial courts decisions then it could have implications beyond the oil patch, and affect any premises or land where pollutants could be deposited.

Therefore, I believe it would be prudent for landowners to ensure their tenants post a bond, or obtain insurance in some form, to pay for the clean up of their operations if the tenant becomes bankrupt. Otherwise, a trustee in bankruptcy could simply disclaim the lease and the landlord would face the costs of cleanup themselves.

All the leases I’ve personally seen assume the environmental obligations pertain to a tenant that is viable and ongoing. They do not foresee what happens if the tenant is bankrupt.

New Client: Fraser Valley Real Estate Board

Posted on February 20, 2018February 20, 2018

We are very pleased to announce another new training client: the Fraser Valley Real Estate Board. We have scheduled commercial real estate classes each month March through May 2018.

We still have openings for additional training in 2018 whether you want more business or want to construct better deals.

Implications for Agents of the new Real Estate Regulations in BC

Posted on January 18, 2018January 18, 2018

While the smoke hasn’t cleared on a lot of the intricacies of the new regulations brought about by the Real Estate Superintendent’s office, the direction is clear.

Rightly or wrongly, the new regulations are intended to ensure rigorous standards of ‘agency’ in the truest meaning of the concept. In short, it means that a licensed agent (licensee) must always act solely in the best interests of their client and hold those interests above their own.

Therefore, limited dual agency will no longer be permitted as of March 15, 2018, since it amounts to a conflict of interest. This will mean the break up of full service teams representing both parties to a transaction, including investment sales & lease transaction in commercial real estate.

Licensees will also have to watch out for the interest of unrepresented parties in a transaction by disclosing that the licensee is the agent for one party, that the unrepresented party should seek independent representation and note the pitfalls of not being represented. The licensee then must have the unrepresented party sign what amounts to a waiver, should that party wish to continue discussions while not being represented; or terminate the discussion while the party seeks independent representation.

So what does this mean in practical terms?

Full service teams will cease to exist, as noted earlier.

Licensees must know when they are providing simple “factual information to general questions” when dealing with unrepresented parties. I’ve asked the Real Estate Council to define what is factual information and general questions, but have yet to receive a reply. The issue is that if the licensee inadvertently provides an opinion during the discussion, that could be interpreted as de facto agency with the other party and run afoul of the dual agency prohibition.

Different licensees within the same office may each have agency with either the buyer or seller, in most cases. This is problematic when it comes to small brokerages and may mean that the brokerage itself is prohibited from representing one of the two parties.

In some cases, where the motivations of each party are known to the licensee, the Real Estate Council suggests the agent give up representing both and refer them to two different licensees.

However, if different licensees in the same brokerage can represent both parties there must be a physical and knowledge separation between the licensees. This could mean they are placed in separate parts of the building, a forceful ‘closed door’ policy so conversations cannot be overheard by the other licensee, and separation of databases, CRM contacts and files. There cannot be shared staff either, such as financial analysts and administrative support to the two licensees. The idea is to create a cone of silence around each licensee. Managing Brokers will be tasked to ensure this separation exists.

During the negotiation, the licensee must take extra care not to relate any information that may detract from their client’s negotiating power. As a result, this may shift the office atmosphere to being more closed and less communicative.

There could be significant impact on the commercial leasing industry, particularly when it comes to entrepreneurial lessees. It is estimated that up to 80% of all lease transactions involving small to medium businesses are conducted between the landlord’s representative and the entrepreneur directly, where a real estate agent does not represent the businessperson.

Landlord representatives, if they are licensed Realtors, will have to make the appropriate disclosures and potentially terminate the lease discussion until the prospective lessee has signed the waiver or obtained representation, just as a residential Realtor would have to do the same at, say, an Open House.

This presents a few practical problems concerning the lease negotiation. The licensee will have to be very careful to know when they are simply providing “factual answers to general questions” and when the negotiation actually starts. It appears the best way to deal with this, is to ask the question of representation up front and get waivers and disclosure documents signed at the very beginning.

There is also a competitiveness issue. While licensees are required to counsel unrepresented parties about the potential pitfalls of self-representation and have them sign a waiver, the same requirements are not imposed on unlicensed, in-house leasing agents for large landlords and developers.

There is a cascading effect to the new regulations that must also be carefully managed. For example, if a licensee represents the purchaser of a commercial property, the licensee may become aware of the new owners motivations and interests. To uphold the concept of agency that licensee may provide representation to the new owner in lease transactions but would be forever barred from representing lessees while that owner owned the property. The reason is that the licensee now has inside knowledge of the landlord. That prohibition would end once the property was sold again – unless the license was involved in the new transaction; or the licensee has ‘inside’ information about the new owner’s motivations and interests from working for the purchaser in another transaction (past or present). Anything gleaned from the general marketplace and research is fair game however.

On the plus side, while up to 80% of small to medium sized business owners lease without representation currently; the new disclosure requirements suggesting the party obtain licensed representation should mean more lessees will engage a licensed agent to assist them. This should translate into more business for commercial licensees.