The government of British Columbia announced an additional property transfer tax of 15 per cent for foreign nationals, answering calls to enact regulation that will prevent foreign buyers from jacking up home prices in Vancouver.
Finance Minister Mike de Jong says recent government housing data indicates foreign nationals spent more than $1 billion on B.C. property between June 10 and July 14, with 86 per cent being made on purchases in the Lower Mainland area.
“While investment from outside Canada is only one factor driving price increases, it represents an additional source of pressure," British Columbia Finance Minister Michael de Jong said in a statement. “This additional tax on foreign purchases will help manage foreign demand while new homes are built to meet local needs.” The cash collected under this tax will go into the Housing Priority Initiatives Fund for provincial housing and rental programs, de Jong said.
The tax, set to go into effect on August 2nd
, will only apply to foreign buyers registering the purchase of residential homes in Metro Vancouver. The tax is in addition to the property transfer tax already in place of one per cent below $200,000, two per cent between $200,000 and $2 million, and three per cent on the remainder of a purchase. It only applies to residential property, and Tsawwassen First Nation lands are exempt.
Although many people – professionals and residents alike – have clamored for someone to do something about the runaway home prices in Vancouver, not everyone thinks that this additional land transfer tax is the best way to go, or that the timing is smart. “I recognize that Canada needs to do something about foreign investment buyers . . . but to give the investors or the buyers four days [notice] is just ridiculous,” said Pam Allen, a real estate agent in Vancouver. “It’s going to result in a lot of transactions perhaps collapsing, and that’s not good for the economy either.”
While this will undoubtedly have some sort of effect on Vancouver property buyers, it’s unclear whether or not it will have its desired effect of making housing more affordable for British Columbia's middle-class buyers. “If we are going to put British Columbians first, and that is what we are intending to do, we need to make sure we do everything we can to try and keep housing affordable,” said Premier Christy Clark. “Ultimately, the goal is to affect the demand by making sure it’s maybe a little tougher for foreign buyers to find their way into our market.”
More and more middle-class buyers have already had to move out of Vancouver into other areas, such as Fraser Valley, and it’s unclear as to whether the surrounding areas will also end up adopting such a tax as investors look for other places to park their money. Whether or not those places are elsewhere in B.C. or across the country in Toronto remains to be seen.
This legislation package also enables the City of Vancouver to amend its community charter in order to levy a vacancy tax. The vacancy tax would be to prevent against non-residents buying property and letting it sit empty, thereby decreasing the supply of homes available to residents as well as failing to pay local taxes that benefit local infrastructure for residents who do live there.
But Allen thinks that the ship has sailed on the vacancy tax and that forcing a property owner to do something particular with their property such as renting it out is encroaching on their rights. “How are they going to police it? Are they going to create another empire to police all of these vacant properties? To me, it’s not solving the problem,” she said. “They have to create more housing, is what they have to do. And that’s by issuing more permits and just making it easier for people to build, and for developers to create the housing that’s needed.”
Canada already has restrictions for non-residents in certain places, such as PEI, which restricts the amount of land a non-resident can buy. There are limits to agricultural land in Saskatchewan, Alberta, Manitoba, and Quebec. In PEI, non-residents are limited in both the amount of property as well as the length of waterfront property that they can own, and property taxes are higher than they are for island residents. The U.S., U.K., Mexico, Hong Kong, and Australia, are all countries that have rules for non-resident property purchases, either through land limitations, property regulations, or extra/increased taxes.
All property transfer transactions will be subject to audits and all property transfer tax returns will be reviewed and verified. Failure to pay may result in a fine of up to $100,000 for individuals and $200,000 for corporations, or up to two years in prison.
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