As Speculation Tax notices are starting to sink in I am getting lots and lots of inquires as to how Realtors should be handling this tax and advising their clients.
First and foremost, Licensee should be:
- Directing their clients to the government website:
- General Info: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax
- Exemptions: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/exemptions-speculation-and-vacancy-tax
- How to declare: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax/declaration
- Directing their clients to seek professional advice from a professional if they have further questions.
This new Speculation and Vacancy Tax Act is not exactly a straight forward read, and in the last months I personally have had a number of conversations with lawyers across the province on the possible interpretations of many provisions and how different scenarios will play out.
I am also aware that some local real estate lawyers have suggested a mere acknowledgement in in the contract and referring your client to an accountant for tax advice. This suggestion personally strikes me as good risk management for the lawyer, but not necessarily good for the average residential real estate seller who is now going to struggle to find an accountant who is up to speed on the issue during subject removal (likely they don’t get the advice and they just worry).
Here are (in my opinion) are a couple of good practices, how you proceed will depend on your client and your professional judgement:
From a Seller’s Perspective:
- OUTSIDE THE CONTRACT! – The Licensee should remind their Seller clients (perhaps in your listing agreement schedule A)
- “SPECULATION TAX – All Owners as at Dec 31 in the prior calendar year are required to declare and if they are not exempt, to pay Speculation Tax for the prior calendar year even if they are not owners as at July 2 (the payment date). The Seller is advised to review the government exemptions and seek professional advice regarding this tax liability.”
- Remember that we want to avoid excess clauses in the contract that are NOT directly negotiated between Buyer and Seller (the Realtor/ Licensee is not a party to the contract)
From the Buyer’s Perspective (IN THE CONTRACT) –
- Choice 1 (SAY NOTHING) – If your Buyer is not worried about this, you can simply choose to leave NO MENTION of it in the contract, the Buyer, upon paying PTT (and not being an defaulting owner on Dec 31, see section 103/105 of the Act) will be exempt from tax in the year of acquisition (this has been clarified since the initial commentary legislation was first released in November).
- Choice 2 (ADD A REP AND WARRANTY) – If your Buyer is worried and they don’t want reduce the risk of being involved in a Speculation Tax audit
- Draft this into the Contract (first):
- This property is located in an designated taxable region under the Speculation and Vacancy Tax. The Seller represents and warrants to the Buyer that the property is eligible for an exemption in the prior tax year. The parties are advised to seek independent legal advice on the application of the Speculation Tax.
- Then, if the Seller counters that they are NOT EXEMPT, I would suggest the following:
- This property is located in an designated taxable region under the Speculation and Vacancy Tax. The Seller represents and warrants to the Buyer that the property is NOT eligible for an exemption in the prior tax year and the Seller solicitor shall undertake to holdback the amount of the tax from the proceeds of sale at closing and pay such amount to Province when due. The parties are advised to seek independent legal advice on the application of the Speculation Tax.
- IN THE NEWS – REAL ESTATE AND MONEY LAUDERING
Global recently published a news story about the prevalence of real estate and money laundering in the Vancouver market (here). This is a great reminder for Realtors on the requirements of the PCMLTFA and the Regulations on brokerages to: set up a compliance program, keep good records, appropriately identify clients; and report where there is suspicious activity or a large cash transaction (see pg 45 from LU 2017).
REFERRALS TO PETER
The best way to make a referral is a telephone call or a joint email attaching the offer between the realtor, the client and myself (firstname.lastname@example.org), these emails get a return call or email as soon as possible in all cases.
We do some interesting stuff around here, in addition to residential real estate within OMREB, we work on complex commercial, land assembly, development, native land, and industrial deals all over the Province. If you are outside of board area and are working on something unique, chances are we have done it, please feel free to give us a call (250-762-5434).
Have a great week,