Tenancy requirements for the 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 federal Income Tax Act.

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
• 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

An owner's spouse, or the owner's minor child living with their parent or guardian, can never be considered a tenant.

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.

Example:

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.  

Example:

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.

Result:

In both examples, the entire property is exempt because part of the property is being rented.

Family and other non-arm's-length tenants

Canadian owners

If the tenant is a non-arm's-length tenant, and the owners are Canadian citizens or permanent residents of Canada but not untaxed worldwide earners, 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

Example:

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.

Result:

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.

Example:

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.

Result:

No exemption is allowed. The tenant does not live in the home most of the time for any of the months being counted.

Foreign owners

If the tenant is a non-arm's length tenant, and the owners are untaxed worldwide earners or are not Canadians, a rental exemption may apply in very limited circumstances.

At least one tenant per residence 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 an untaxed worldwide earner (a category of taxpayer that includes members 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. A tenant may not combine their income with another person for this purpose

Example:

The owner of a three-bedroom condo near UBC is an untaxed worldwide earner. One of the owner’s sons and two nephews each rent a bedroom of this condo. Their annual income is each approximately half of the condo’s annual fair market rent value. They are all non-arm’s length tenants.

Result:

Since they may not combine their income, none of them meet the requirements to exempt the owner from the speculation and vacancy tax.

Example:

The owner of a large heritage property in Burnaby is not a Canadian citizen. The property has been subdivided into five self-contained apartments, which are each rented to members of the owner’s family and close friends. The owner’s eldest daughter lives in one of the apartments. She makes an annual income that is more than three times the annual fair market rent for the entire heritage property (meaning all five apartments combined).

Result:

Although none of the other tenants qualify, the owner has one qualified non-arm’s length tenant and therefore qualifies for a tenancy exemption.

Canadian and foreign co-owners

If the tenant is a non-arm's-length tenant, and one owner is Canadian but not an untaxed worldwide earner and another owner is foreign, each of the owners is entitled to exemptions based on their specific circumstances.

Example:

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.

Result:

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.

Arm’s-length tenants

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

Example:

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.

Result:

The owner of the condo is exempt from the speculation and vacancy tax.

Example:

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. 

Result:

Both owners of the house are exempt from the speculation and vacancy tax.