Parsing Principal Residence Exemptions Across Tax Statutes in BC

Published by Noah Sarna & Zheting Su

Taxes on residential realty in and around Greater Vancouver have been steadily proliferating over the past few years: first the provincial Foreign Buyer Tax (2016), then the municipal Vacancy Tax (2017) and, most recently, the provincial Speculation Tax (2018). All of them, in one form or another, provide exemptions for properties used as principal residences, which are prominently publicized in government publications.

For many local homeowners, these references evoke the principal residence exemption under the federal Income Tax Act (the “ITA”). That exemption generally permits a taxpayer to sell their “principal residence” free from tax if he or she ordinarily inhabited the property during each year of its ownership. As a result, an owner might be tempted to assume that, if their property falls within the ambit of the ITA exemption, it is entitled to similar treatment under these unique realty taxes. The owner might reason that surely, in designing these taxes, the various levels of government would not choose to adopt different technical bases to identify what is ostensibly the same concept.

Unfortunately, this is exactly what they have done. The principal residence exemptions under these realty taxes each work in different ways. This is, in part, because the term “principal residence” is defined differently under each legislation, none of which align with the definition in the ITA.

This article briefly contrasts the relevant definitions for the purposes of these realty taxes. The takeaway is that, in considering any of these taxes, owners need to check their assumptions at the door.

(a)        Foreign Buyer Tax

One of the earliest provincial definitions of a principal residence appears in BC’s Property Transfer Tax Act (the “PTTA”), which governs the Foreign Buyer Tax. The statute actually includes two “principal residence” definitions, each of which applies to separate provisions within the PTTA. The definition most relevant to the Foreign Buyer Tax specifies that the term means “the usual place where an individual makes his or her home”.

This definition does not appear to have been considered by the Courts in the PTTA context. However, there is caselaw concerning an identical definition in BC’s Home Owner Grant Act (the “HOGA”), which suggests that it calls for a qualitative, not quantitative, test. That is, even if an owner resides in one property for a longer period than they reside in another, their relationship to the first property might be inadequate to qualify as their “principal residence”. What matters is generally the location of their “home base”, from which any departure is only temporary and there always a realistic expectation of return. If that principle applies to the Foreign Buyer Tax, then it is almost certainly a higher threshold than a property simply being “ordinarily inhabited” for income tax purposes.

(b)       Vacancy Tax

In drafting Vancouver’s Vacancy Tax By-law No. 11674, City staff intended to adopt the test for principal residency from BC’s Home Owner Grant program. In one report, they stated that a “principal residence” would be “the centre of the [owner’s] affairs”. This was intended to be the case even if the owner resides elsewhere for extended periods, such as a professor taking sabbatical leave.

In putting pen to paper, however, the intended administration of the rule was emphasized ahead of the intended legal test. The result is the following definition, which is challenging to operationalize with clarity:

“the usual place where an individual lives, makes his or her home and conducts his or her daily affairs, including, without limitation, paying bills and receiving mail, and is generally the residential address used on documentation related to billing, identification, taxation and insurance purposes, including, without limitation, income tax returns, Medical Services Plan documentation, driver’s licenses, personal identification, vehicle registration and utility bills and, for the purposes of this by-law, a person may only have one principal residence”

In other words, the following two main conditions must be met for a property to be an owner’s “principal residence” for Vacancy Tax purposes:

  1. The property must be the usual place where an individual lives, makes his or her home and conducts his or her daily affairs, including paying bills and receiving mail.
  2. The property must generally be the residential address used on documentation related to billing, identification, taxation and insurance purposes, including income tax returns, MSP documentation, driver’s licenses, personal identification, vehicle registration and utility bills.

The City might have simply adopted the PTTA/HOGA definition. They chose not to, however, and the more expansive definition prompts a series of questions. For instance, are the phrases “where an individual lives”, “makes his or her home” and “conducts his or her daily affairs” redundant, or do they each have a distinct meaning? Similarly, what does “generally” mean in the second condition? Does it suggest that a quantitative approach is to be preferred based on where most of the individual’s mail is sent?

Regardless of the answers to those questions, one thing is clear: the Vacancy Tax definition is unlike both the Foreign Buyer Tax definition and the income tax definition.

(c)        Speculation Tax

This brings us to the definition in the proposed Speculation Tax bill (“Bill 45”), which, although still under debate in the Legislature, is expected to become law shortly. Bill 45 defines a principal residence as “the place in which an individual resides for a longer period in a calendar year than any other place.”

This definition prompts its own questions; “reside” is undefined in Bill 45, for instance. Regardless, it clearly moves in a different direction than the Foreign Buyer Tax and Vacancy Tax, looking primarily to a quantitative rather than qualitative test. Snowbirds spending much of the year in the United States and staying with their children or relatives sporadically throughout the rest of the year, for instance, might have issues. Similarly, the professor on sabbatical might need to find another exemption. Complicating matters, Bill 45 includes a rule that limits the ability of spouses who often live apart to claim separate principal residences. There is no such prohibition in the Foreign Buyer Tax or Vacancy Tax legislation.


As the above demonstrates, these realty taxes include incongruous definitions of a “principal residence”. This means that an individual entitled to a principal residence exemption in respect of one tax may not be exempt from another. An owner cannot simply assume that their home is exempt, in all cases, by virtue of it being their principal residence for the purposes of a single tax. The new tax reality for homeowners in and around Greater Vancouver requires a more careful analysis.