Your Home is Still Your Castle - but less and less so
Ownership of private property is a cornerstone of Western Liberal Democracy. Property ownership includes the right to use, enjoy and dispose of land.
As Canadians are so fond of pointing out, no rights are absolute (your land use is restricted by zoning bylaws, you can enjoy your property, but not if you are causing a nuisance for your neighbors in the process and your sale of property must be recorded in the Land Titles System to be legally binding on any third party). For the most part land owners accept these restrictions as being reasonable limitations on their property rights.
However, since 2016, governments at all levels have become more concerned with restricting and regulating property rights, as well as increasing taxes on property owners in the process.
These are a few of the newer taxes and laws that affect your property:
2016 BC Foreign Buyers Tax ("additional tax" under the Property Transfer Tax Act) which levied a 15% tax (now 20%) on residential property purchasers who are neither Canadian citizens or permanent residents. This tax applies in most areas of BC. The tax effectively curtailed the massive influx of foreign buyers that had been driving up real estate values for a decade in this province (ironically, aided and abetted by the BC liberal government of the day to encourage "investment" in BC real estate).
2017 Change to Residential Tenancy Act abolished a landlord's right to have a fixed term tenancy end at the end of the term. This seriously undermined a landlord's ability to get rid of a bad tenant at the end of a term lease or to increase the rent to offset runaway inflation. Numerous further changes to the RTA have made life more challenging for owners of residential investment properties.
2017 City of Vancouver Empty Homes Tax ("EHT") abridged a home owner's right to leave his or her residential property empty in the city of Vancouver for more than six months a year by way of a 1% property tax levy based on the BC Assessment Value for so doing. EHT is now 3% and rumored to increase to 5% next year. The tax was premised on the assumption that there were 25,000 empty homes in Vancouver (when in fact, there were only 2,500). Despite its promise, EHT has had little effect on housing affordability or rents as Vancouver remains one of the least affordable cities in Canada.
2018 BC Speculation and Vacancy Tax Act abridged a home owner's right to leave his or her residential property empty for more than six months a year by way of a .5% tax levy (up to 2% in certain circumstances) for so doing. The tax was deceptively marketed to British Columbians as a way of preventing foreigners (those who were neither citizens or permanent residents) from parking their money in BC real estate and leaving their properties empty. At the last minute, the government decided to include citizens and permanent residents into the mix, but there was no advertising or public debate on that matter. Like the EHT, the Spec Tax has had virtually no effect on rental affordability or housing prices.
2019 BC Land Owners Transparency Act required property purchasers in BC to file a transparency declaration and corporations, trusts and partnerships to file a further transparency report. Said reports include information about the "interest holders" including birth dates, citizenship and residency, social insurance numbers (or income tax filing numbers) and more. The Act was passed as the government claimed that it did not have an accurate record of the "real" owners of properties in BC. It is not clear how this plethora of information will be used by the government to inform policy decisions on property purchases in BC.
2022 Federal Under Utilized Housing Tax abridged a home owner's right to leave his or her residential property empty for more than six months a year by way of a 1% tax levy. Canadian citizens and permanent residents are exempt from filing but not corporations, partnerships or trusts (although the latter may become exempt in upcoming proposed amendments). After repeatedly claiming that "housing was a provincial issue," the federal government passed this legislation in response to widespread dissatisfaction with the national housing crisis (which ironically, it had helped to create with its irresponsible immigration policies).
2023 Federal Prohibition on the Purchase of Residential Property by Non-Canadians Act (also known as the foreign buyers ban) prohibited non-Canadians and non-permanent residents from buying residential property in larger population areas in Canada (with certain exceptions). The Act was to end in 2025 but it has been recently extended to 2027, as the liberal government tries to make it appear that they are doing something about the housing affordability problem in Canada (as a federal election is looming next fall).
2023 Federal Anti-Property Flipping Tax (by way of an amendment to the Income Tax Act), which makes the sale of one's principal residence fully taxable as INCOME if the sale is made within one year of purchase (subject to some exceptions such as death, gift, divorce etc.) However, if the home decreases in value, no write off against the seller's income is permitted. This is the first part of the federal government's plan to eventually take away the tax exemption for the sale of one's principal residence.
2025 BC Residential Property (Short Term Holding) Profit Tax Act (also known as the BC Anti-property flipping tax). If a residential property is sold in BC within two years of its purchase, the profit (not yet defined) will be taxed at 20% during the first year and at at a gradually declining rate in the second year. This Act will be retroactively applied to properties sold between 2023-2025 if the sale occurs after January 1, 2025.
The official rationale for these laws is that they are necessary to address the national housing crisis which has made it prohibitively expensive for many Canadians to buy or rent properties in which to live.
An alternative (albeit more cynical) explanation may be that:
1) Governments at all levels are broke (the BC government has more than doubled the provincial debt (from $50B to over $100B) in the last eight years and is running the biggest annual deficit in the province's history (about $8B). The federal government has also increased the federal debt from about $680B to almost $1.4T since 2015 and it's currently running a $50B annual deficit for this year). In addition the interest payments alone on the federal debt now exceed $50B (which is more than the feds pay to the provinces annually as transfer payments under the Canada Health Transfer)! As GDP per capita in Canada has been constantly declining over the past decade or so FR Report (and foreign investment is disappearing), picking tax payers' pockets may be the governments' only recourse, unless they can curtail their spending -which is unlikely.
2) In a misguided effort to offset the economic effects of an aging population (and to artificially inflate the country's GDP), the federal government has massively increased immigration over the past eight years to over one million people per year. Unfortunately, the country is not capable of absorbing such large numbers of people, which has put pressure on housing prices and rents (not to mention the medical system, schools, transportation etc.)
Housing and rent affordability is a massive problem and it's almost certainly here to stay for the indefinite future. CMHC projects that the country needs an additional 3.5 million homes by 2030 to catch up to historical levels of home ownership CMHC Report. That would require the housing industry to more than double the rate of residential construction over the next five and a half years Housing Starts. Clearly, that is not going to happen.
Unfortunately, the largely government-created housing crisis has resulted in the the ever-increasing abridgment of the rights of property owners. Each new law usually creates a new bureaucracy which costs the taxpayers tens of millions of dollars per year and requires property owners to provide the government with ever more personal information.
More importantly, the rights of property owners are being diminished in the process. It is one thing to tell a property owner that he cannot carry out criminal activities on his property, but another thing altogether that he cannot leave it vacant or that he cannot terminate his tenant's lease when it's term is up.
For the time being, claiming a principal residence exemption for a home is sufficient, however I foresee a time in the not too distant future (barring a defeat of the NDP government this fall) when home owners will be required to rent out their basements or extra bedrooms which are not being currently used (or are being "underutilized" to use the government's parlance) to combat the housing problem. Where that ends is anyone's guess.
(C)(2024) Pazder Law Corporation
Disclaimer: Laws are constantly changing (and not always for the better). Always consult a legal or accounting professional before making significant decisions about real estate.
