With experts forecasting a cooling real estate market for the beginning of 2019, some executors may be tempted to hang on to real property that falls within an estate and wait until more favourable market conditions before listing the property for sale.
With the recent introduction of taxes targeting vacant homes in Vancouver, executors holding real property in Vancouver on behalf of an estate should consider the costs of these additional annual property taxes in their decision making.
The much-anticipated Speculation and Vacancy Tax (the "SVT") was quietly passed by the B.C. government at the end of 2018. The SVT affects properties in several regions, including properties within the Metro Vancouver Regional District.
In 2018, properties that are not subject to an exemption will be taxed at a rate of 0.5% of their assessed value. In 2019, this tax rate will remain the same for Canadian property owners who reside in BC, but will increase to 1% for Canadians who primarily reside outside of BC and to 2% for foreign owners and members of satellite families1.
All properties in a taxable region, including those held in estates, are automatically considered taxable properties under the SVT, unless the property qualifies for one of the many exemptions available to B.C. property owners.
Executors may therefore be responsible for paying the SVT on behalf of the estate unless they can demonstrate that the estate property is exempt from the tax.
The B.C. government has introduced some exemptions to the SVT that specifically apply to real property held by estates.
Real property held by an estate is exempt from the SVT in the year of the property owner's death and also for the immediately following calendar year.
The SVT also does not apply to properties held in a testamentary trust created for the benefit of a deceased property owner's minor child.
It is important to note that the SVT is a distinct tax from the City of Vancouver's Empty Homes Tax (the "EHT"), which is another tax affecting vacant properties in Vancouver.
In addition to any taxes owing under the SVT, under the EHT executors will need to pay a tax of 1% of a property's assessed value if the estate property is vacant and located in the City of Vancouver.
If an estate property was vacant for more than 6 months in a calendar year because the grant of probate for the estate had not yet been issued, preventing the executor from renting out or selling the property, the property can claim an exemption from the EHT.
However, if a grant of probate was issued by a date that would have allowed the property to be occupied for 6 months of that calendar year, the property will be subject to the EHT.
Footnote
[1] People who declare less than 50% of their total combined household income for the year on Canadian income tax returns are considered members of a satellite family. More information can be found on the BC government's website: www2.gov.bc.ca.
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