Rental restriction by-laws and the BC Speculation Tax

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SFU finance professor, Andrey Pavlov’s recent op-ed in the Sun newspaper points out yet more flaws in the dreadfully drafted Speculation Tax.

Here is another one he didn’t mention.

Many strata buildings in BC have opted for rental restriction by-laws ranging from 1) no short-term rentals (i.e. “Air B&B”), 2) only a certain number of rentals being permitted at one time, or 3) no rentals are allowed.

There is nothing wrong with any of these scenarios.  The collective group of strata owners is lawfully entitled to restrict rentals in their building pursuant to section 141 of Strata Property Act which states:

Restriction of rentals by strata corporation

141   (1)The strata corporation must not screen tenants, establish screening criteria, require the approval of tenants, require the insertion of terms in tenancy agreements or otherwise restrict the rental of a strata lot except as provided in subsection (2).

(2)The strata corporation may only restrict the rental of a strata lot by a bylaw that

(a)prohibits the rental of residential strata lots, or
(b)limits one or more of the following:

(i) the number or percentage of residential strata lots that may be rented;
(ii) the period of time for which residential strata lots may be rented.

(3)A bylaw under subsection (2) (b) (i) must set out the procedure to be followed by the strata corporation in administering the limit.

The misleadingly named Speculation and Vacancy Tax however, ignores the right of strata corporations and their owners to set their own rental policies. The whole point of having rental policies in the first place is so owners of a strata can govern the type of environment in which they wish to live. Arguably, owners are more diligent in regard to the affairs, management and up keep of the building than tenants. Rental restrictions can also be seen as a safety feature as they limit the number and turnover of new occupants residing in the strata complex.

The Speculation Tax allows for an exemption for rental restrictions but only for 2018 and 2019.

An excerpt from the government of BC’s Spec Tax website confirms the rental restriction exemption as follows:

10. Property has rental restrictions (2018 and 2019 tax years only)

When a covenant or a strata bylaw prevents the property from being rented out in a manner that would allow a rental exemption, all owners of a property are exempt for the 2018 and 2019 tax years only, as long as the rental restriction was in place on or before October 16, 2018. The owner must also have purchased the property before that date.

What happens after 2019?

In the absence of further legislative changes, it would appear that after 2019, the Speculation Tax will apply to strata owners who fail to either occupy or rent out their condos for at least six months despite any rental restriction bylaws!

That means that the owner will have to:

– move into the unit for 6 months or more (which, if the property is a “second home” or “vacation property” is likely not feasible);

– sell the property;

– rent the property anyway (and run afoul of the bylaws, thus being open to potentially hefty fines from the strata corporation and ultimately a court order terminating the rental); or

– pay the Speculation tax every year.*

Why not “grandfather” strata complexes with existing rental restrictions indefinitely?

This draconian legislation encroaches on the rights of strata owners to control rentals within their own buildings!

This disingenuous piece of legislation discriminates against law abiding property owners of strata units, including Canadian citizens who reside in BC and pay taxes here.

IS IT JUST A TAX GRAB?

The government’s own marketing materials and website estimates that only 1% of BC property owners will be caught by the Spec Tax.

If that estimate is accurate, then the number of homes that could be added to the rental housing market pool by virtue of owners trying to avoid paying the Spec Tax would only be 1% of the existing housing inventory -an insignificant amount by any standard.

However, the government estimates that the tax will garner some $200,000,000 (which includes about $30,000,000 from Canadians and BC residents) for their coffers.

*The government permits a tax credit of up to $2,000 (i.e. .5% of property value up to $400,000) for BC residents or Canadian citizens who pay most of their worldwide household income in Canada –which is better than nothing, but there are not a lot of properties under $400,000 in the major centers in BC, so tax would still have to be paid on any higher values.

In addition, I have not come across any literature put out by the government that said funds are earmarked for affordable housing initiatives, so despite their rhetoric, said funds can be used for any project the government deems expedient, as they will go into GENERAL REVENUE.

Thus, the conclusion that the Speculation Tax is nothing more than a tax grab is not an unreasonable one. For more information and other ways the speculation tax is affecting B.C. residents’ rights see:

The Speculation and Vacancy Tax – What the government isn’t saying

© 2019 Pazder Law Corporation

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For further information on the Spec Tax call Kenneth Pazder or Melissa Valana at 604-682-1509

Disclaimer: The foregoing is not legal advice, but is presented for information purposes only.