Tenancy Requirements for Speculation and Vacancy Tax Exemptions
The speculation and vacancy tax exemptions include a key concept: a difference between arm's length tenants and non-arm's length tenants.
This concept is the same as the one used in the Income Tax Act (Canada).
A person who is at arm's length is a person who has no special advantage in their dealings with you. On the other hand, family members, such as parents, adult children or siblings, can never be at arm's length. Friends may also receive similar advantages. This type of relationship is referred to as “non-arm’s length”.
For the purpose of the speculation and vacancy tax:
- Where a tenant or landlord deals with the other at an advantage, the tenant is referred to as a non-arm's-length tenant
- A non-arm's-length tenant does not need to have a written rental agreement in place or pay rent
- An owner's spouse, or the owner's minor child living with their parent or guardian, can never be considered a tenant
- Generally, outside of the family situation, all the circumstances of the tenancy are taken into account when determining if a person is a non-arm’s length tenant or not
For owners to be eligible for a tenancy exemption, tenants must occupy the residence for at least six months of the year (three months for 2018). To meet the minimum six-month occupancy requirement, an owner may:
- Combine the number of months rented to an arm's length tenant with the number of months rented to a non-arm's length tenant
- Have a number of different tenants during the year
However, each individual tenancy must still meet all tenancy requirements, such as rentals in at least one month increments or non-arm’s length tenancy requirements for foreign owners.
Owners can be exempt for their entire property if they rent one or more residences on it.
A homeowner living in Victoria has a second house in Kelowna that they only use for vacations, but the house includes a basement suite that’s rented by one tenant who stays there six months a year.
A couple in Vancouver own a second home with a small, detached cottage at the back of the property. The main house is unoccupied but the cottage is rented to students year-round.
In both examples, the entire property is exempt because part of the property is being rented.
Family and Other Non-arm's-length Tenants
If the tenant is a non-arm's-length tenant, and the owners are Canadian citizens or permanent residents of Canada but not satellite families, a rental exemption may apply if:
- The tenant has the permission of an owner to live there, and
- It is where the tenant lives most of the time each month
Two spouses, who are both Canadian citizens, co-own a house in Victoria, but live elsewhere. One owner’s parents live in the house year-round but do not pay any rent.
A Canadian citizen is entitled to a rental exemption for a non-arm's-length tenant who lives in the residence. Both spouses could apply for this exemption for their respective percentage ownership of the home.
A Canadian owns a property in Esquimalt, but lives in a principal residence elsewhere. The owner has a friend who stays at the home for eight months of the year, but only on weekends.
No exemption is allowed. The tenant does not live in the home most of the time for any of the months being counted.
If the tenant is a non-arm's length tenant, and the owners are not Canadians or members of a satellite family, a rental exemption may apply in very limited circumstances.
The tenant must:
- Be a Canadian citizen or permanent resident
- Be a resident of B.C. for income tax purposes at the end of the last day of the calendar year
- Not be a member of a satellite family
- Have a B.C. income for the calendar year that is equal to or greater than three times the annual fair market rent for the entire residential property
The owner of a condo in New Westminster is not a Canadian citizen. Her adult son lives in the condo and is a Canadian citizen who is a resident in B.C. for income tax purposes. He studies at a local university and has a modest income from a part-time job.
The owner must pay the speculation and vacancy tax. This is a non-arm's-length tenant of a foreign owner who does not have the minimum required income.
Canadian and foreign co-owners
If the tenant is a non-arm's-length tenant, and one owner is Canadian but not a member of a satellite family and another owner is foreign, each of the owners is entitled to exemptions based on their specific circumstances.
Two people, one who is a Canadian citizen and one who is a foreign citizen, co-own a property in Lantzville, but live elsewhere. They allow a mutual friend, who is a resident of Alberta for tax purposes, to live in the home at a reduced rent.
The Canadian citizen co-owner is entitled to a non-arm's-length tenancy exemption for his portion of the home. However, the foreign owner is not entitled to a tenancy exemption for their portion, since the tenant is not a resident of B.C. for income tax purposes.
If the tenant is an arm's-length tenant, all owners may be eligible for a rental exemption, if:
- The tenant has no advantage of any personal or family relationship to an owner
- A written tenancy agreement is in place under the Residential Tenancy Act, and
- The tenant makes the residence their home
A Canadian owner of a Vancouver condo rents the property to a tenant who signs a tenancy agreement and lives in the condo for more than six months of the year. The tenant is not related to the owner.
The owner of the condo is exempt from the speculation and vacancy tax.
A foreign owner of 50% of a Kelowna house and a B.C. resident owner of the other 50% of the house rent the house, under a residential tenancy agreement, to an Alberta resident who lives in B.C. for six months of the year.
Both owners of the house are exempt from the speculation and vacancy tax.