On May 11, 2023, Vancouver City Council created a new exemption under the Empty Homes Tax (“EHT”) for unsold inventory within new developments and kept the annual tax rate for the EHT at 3% of the home’s assessed value rather than increase it to 5% as had been approved by the previous City Council in 2022.
These changes were brought forward to incentivize housing development and encourage investment within Vancouver. Further, this new exemption will be applied retroactively, which means that the Vancouver City Council effectively waived taxes that had been previously levied against unsold inventory within new developments.
What is the Empty Homes Tax?
The City of Vancouver introduced the EHT in 2017 to return empty or under-utilized properties to use as long-term rental homes for people who live and work in Vancouver and to relieve pressure on Vancouver’s rental housing market, as Vancouver has one of the lowest rental vacancy rates in Canada.
Vancouver residential property owners are required to submit a declaration each year to determine if their property is subject to the EHT. Residential properties that are used as a principal residence or rented for residential purposes, subject to certain criteria, will not attract the EHT. Currently, properties deemed or declared empty in the 2022 reference year will be subject to a tax of 3% of the property’s 2022 assessed taxable value, unless the owner falls within an exemption.
Current exemptions available include the death of a registered owner, properties undergoing redevelopment or major renovations, owner living in a care facility, strata rental restrictions, and properties that are transferred during the year.
New Unsold Inventory Exemption
Under this new unsold new inventory exemption, a developer will now be able to claim a yearly exemption for unsold, vacant, new inventory beginning the year after the occupancy permit has been obtained until the inventory is sold or occupied. This exemption is now based similarly to the provincial Speculation and Vacancy Tax and addresses the concerns raised by developers with the EHT on unsold new housing inventory. The development industry has advocated for this exemption since the EHT came into force, but the issue has been exacerbated for developers recently with rising interest rates and slower sales causing developers to take longer to be able to sell new inventory.
This new unsold inventory exemption of the EHT and the freezing of the tax rate at 3% for the 2023 vacancy reference year is aimed at addressing the complex challenges facing the development community in developing and selling new residential homes, and to signal that Vancouver is receptive to assisting developers build more homes in the City in order to alleviate the tight rental and housing market.