Written on behalf of Feigenbaum Consulting
A homeowner in Vancouver has sued the city after being subject to a $249,000 vacancy tax on a property on which she does not reside.
The matter has reinvigorated debate and discussion about the impact of foreign buyers and vacant properties on a continually overpriced and hot housing market in Vancouver and other large centers across Canada.
The Home at Issue
The property at issue, a home located at 4749 Belmont Avenue, was sold for $4.08 million in 1997.
The original 1½ storey, 4,700 square foot home was was designed by prominent local architect C.B.K. Van Norman and built in 1937, and sat on a large 1.1 acre lot overlooking the Spanish Banks. It was once rented to Group of Seven painter Lawren Harris.
Based on reports, nobody has lived at the property since the 1997 sale and the property had fallen into significant disrepair. Despite its condition, the home increased in value more than sixfold and was eventually sold for $24.5 million in 2015.
The current homeowner is the wife of a Chinese billionaire, listed at number 364 on Forbes magazine’s “China Rich List”, with an estimated net worth of $1.2 billion.
In 2017 she was assessed a $249,000 vacancy tax bill (1% of the total value of the property).
The Vacancy Tax
The vacancy tax, also known as the Empty Homes Tax, is a tax of 1% of the assessed taxable value of a property. It was implemented in 2016 in an effort to return empty or underused properties to the market as long-term rentals for actual Vancouver residents.
Each year, Vancouver property owners are required to submit a property status declaration to determine whether their property is subject to the tax. Any properties that are deemed to be empty will be subject to the levy.
Exemptions to the Empty Homes Tax include properties that:
- Are used as a principal residence by the owner, a family member or friend of the owner, or other permitted occupier for at least six months of the relevant tax year;
- Are rented for residential purposes for at least six months of the relevant year, in periods of 30 or more consecutive days; and
- Meet the criteria for one of the listed exemptions
The Tax Dispute
The homeowner in question filed a petition in the B.C. Supreme Court disputing the $249,000 vacancy tax assessment.
According to the homeowner, she had purchased the home in 2015. In early 2018 she filed a property status declaration for the 2017 tax year asking for an exemption from Vancouver’s vacancy tax on the grounds that she was getting the historic home rebuilt and therefore qualified for the exemption that applies to residential property that is unoccupied for more than 6 months for development purposes.
This exemption applies to properties which have the necessary development permits issued by the city and where the city’s chief building official deems the renovations are being carried out “diligently” and “without unnecessary delay”.
The homeowner claims that she (or others on her behalf) applied for these development permits in April 2017 but the city of Vancouver did not issue them until 2019. Her petition states:
The fact that the city did not issue building permits until 2019 when the petitioner or others on her behalf applied for them in 2017 was not because of any action or inaction by the petitioner or others acting on her behalf…[a]t no time has the chief building official expressed the view that the property’s redevelopment was carried out other than diligently and without unnecessary delay.
She further claims that the city denied her claim for redevelopment exemption in March 2018 and subsequently issued the vacancy tax notice. She argues that this denial was unreasonable, should be overturned, and that the property should qualify for the exemption.
The City’s Response
In response to the homeowner’s petition the city of Vancouver filed documents defending its decision to impose the vacancy tax.
The city argues that a high degree of deference must be accorded to the vacancy tax review panel which initially decided to uphold the vacancy tax levied against the property in question.
The city points out that the homeowner had failed to submit the necessary documents that would exempt the property from the tax. When she filed her complaint seeking to have the tax removed, a vacancy tax review officer denied her claim on the basis of insufficient documentary evidence. A subsequent appeal filed by the homeowner to a vacancy tax review panel, an independent tribunal, was also rejected.
In its response to the homeowner’s current petition the city argues that “[t]he decision by the vacancy tax review panel is both reasonable and correct.”
In documents attached to the city’s response, a tax review officer noted that while the homeowner had applied for a permit, the application remained in “review” status while additional checks were being completed but there had been nothing preventing the property from being occupied in the interim.
The vacancy tax review panel noted that the tax review officer had taken all of the information into consideration including the fact that the property was purchased in 2015, already in an uninhabitable state, and the owner did not submit an application for a development permit until April 2017. The panel further noted:
The Chief Building official’s office has confirmed that any delays were not due to city error or omission and were reasonable within the development process and should have been taken into consideration by the owner and their design team.
The outcome of this matter remains to be seen. We will continue to follow any and all developments and will provide updates as they become available.
Foreign Buyers in Canada
We’ve previously blogged about the various tax implications of real estate transactions, including the impact of Foreign Buyers’ Taxes and other measures in cities with hot housing markets (such as in Toronto and Vancouver).
Experts note that real estate in Vancouver is a big draw for wealthy Chinese families due to the dearth of publicly accessible records about beneficial owners. This lack of transparency makes is easy to park money in real estate.
The owner in question would have remained unnoticed had she not disputed the vacancy tax.
How Can Feigenbaum Law Help?
If you need assistance with personal tax planning, including the implication of any real estate purchases, speak to Mark Feigenbaum. Our focus is Canadian and U.S. tax law, specifically the legal and financial complexities that arise when your money crosses the border. We offer a range of services in this highly niche area, providing skilled advice and solutions.
Our customized solutions streamline compliance requirements and set our clients up to take advantage of all possible current and future opportunities to reduce their tax burden. As a client, you will have peace of mind knowing that your matters are being handled by industry leaders with years of experience. We know taxes can be stressful, so we work with you to make your tax experience as simple and worry free as possible.