B.C. slaps 15% additional tax on foreign nationals buying property in Metro Vancouver

Financialpost.com
July 25, 2016
By Garry Marr

Foreign buyers will pay an extra 15 per cent in property tax fees on residential real estate in Metro Vancouver, a move British Columbia announced Monday to cool the country’s hottest market.

“The data we started collecting earlier this summer is showing that foreign nationals invested more than $1 billion into B.C. property between June 10 and July 14, more than 86 per cent of it in the Lower Mainland,” said Finance Minister Michael de Jong. “While investment from outside Canada is only one factor driving price increases, it represents an additional source of pressure on a market struggling to build enough new homes to keep up. This additional tax on foreign purchases will help manage foreign demand while new homes are built to meet local needs.”

An average single-detached home in Metro Vancouver now sells for $1.56 million.

Some who follow real estate in the province, where existing home prices in its largest city rose about 36 per cent in June from a year earlier, questioned whether the punitive tax will have any impact on property prices in the single-detached home market it targets.

Others wonder whether off-shore speculators will find a way around the tax, which would amount to $300,000 on a $2-million sale. B.C. already has a property tax transfer rate of one per cent on the first $200,000, two per cent on the portion greater than $200,000 up to and including $2 million, and three per cent on the portion of the fair market value greater than $2 million.

The new tax will go into effect Aug. 2, but will not impact treaty lands of the Tsawwassen First Nation. Foreign-controlled corporations will be subject to the additional tax, as will trustees if they are a foreign entity, or if at least one beneficiary of the trust is a foreign entity. Corporations are also liable, if controlled by foreign entities.

Up until the announcement, the B.C. government had been resisting calls to tax offshore investors, although earlier this month it agreed to a request from Vancouver to allow the city to impose a special tax on the owners of vacant property.

Bob Rennie, a marketing specialist in Vancouver who has called for a speculation tax, said he didn’t think the tax would be as high as 15 per cen,t but acknowledged everybody is trying to find a way to cool demand and increase supply.

“There is no one thing that will solve affordability, there is no silver bullet,” said Rennie, adding that with a tax this high there be incentives to find a way of avoiding it. Fines for offences related to the tax will be the amount of unpaid tax and interest plus $200,000 for corporations and $100,000 for individuals.

Douglas Porter, chief economist with Bank of Montreal, says he’ll be watching closely to see the impact of the move, adding that, with prices in Toronto’s detached home market rising almost 20 per cent annually, he thinks Ontario would be wise to monitor the situation.

“I think the revenue aspect is secondary. If (the B.C. government) happens to bring in a fair bit of money, that will be a bonus,” Porter said. “From a personal standpoint, I think Ontario should take a long hard look at this immediately. First of all, Ontario does have much more of a fiscal challenge than B.C. so any new revenue source that does nothing to harm residents should be worth a look.”

Brendon Ogmundson, an economist with the British Columbia Real East Association, says now that the government is tracking foreign investment through property tax transfers, it will be easy to follow offshore investing in real time.

“Given the low share of purchase by foreign investors in Greater Vancouver, the overall impact should be relatively small, but (the tax) could be significant in markets that showed a lot of foreign investment, like Burnaby and Richmond,” he said.

Brad Henderson, chief executive of Sotheby’s International Realty Canada, said how the new tax is policed will be important in determining its impact. “Investment is a factor but it’s not the only factor driving the market. What is still the case is there are too many buyers for the the number of homes available,” he said.