Premier John Horgan’s NDP government has taken steps to tamp down speculation in B.C. real estate by imposing a new speculation tax and increasing the foreign buyers tax to 20 per cent.
Both measures, aimed at slowing the flow of global capital that critics say is driving up B.C. home prices, will extend beyond Metro Vancouver to other urban centres of B.C.
The new 20 per cent level for the foreign buyer tax takes effect immediately, on Wednesday.
NDP Finance Minister Carole James acknowledged her government hasn’t fully modelled the effect the new tax measures on B.C. real estate prices or calculated the cost of increased auditing and enforcement. But the government wants housing prices to drop, she said.
The most significant action to cool B.C.’s speculative housing market was raising the existing 15 per cent foreign buyer tax to 20 per cent. The existing tax applied only to Metro Vancouver; the higher tax will also cover the Victoria and Nanaimo land districts on Vancouver Island, the Fraser Valley, Kelowna and West Kelowna. The expanded tax is expected to bring in an extra $40 million a year.
James said some municipal politicians in these areas outside Metro Vancouver were reporting increased interest from foreign investors seeking to avoid the Metro foreign buyer tax, so the NDP decided to cast a wider net.
Similar logic applies to the new speculation tax, which will cover the same regions and is aimed at absentee homeowners. The speculation tax is forecast to bring in $200 million annually.
The speculation tax, which resembles a plan endorsed by a number of B.C. real estate economists, is intended to get tax from absentee investor homeowners who often declare little or no income tax in B.C., but are believed to have substantial global incomes. The tax will start at 0.5 per cent of a home’s assessed value for the 2018 tax year and increase to 2.0 per cent in 2019.
The government said most B.C. homeowners will be exempt, but James acknowledged the fine details, such as whether vacation homeowners from other Canadian provinces will be exempt, aren’t yet clear.
Generally, those who occupy their home, rent out the home, or pay income taxes in B.C. will be exempt from the speculation tax, according to James.
“We are applying this new speculation tax broadly to ensure we don’t simply push speculators into neighbouring markets,” a Finance Ministry statement says. “This bold new tax will help return the real estate market to one that serves local residents, rather than speculators.”
In another key change, after phenomenal real estate price rises over a decade in Metro Vancouver, there will be an increased school tax and an increased property transfer tax for all homes valued over $3 million. The higher school tax rate is expected to raise $200 million annually, while the increased property transfer tax rate for these homes will raise $81 million annually, according to forecasts.
The collection of new demand-cooling taxes was not popular with B.C.’s real estate industry.
“We are extremely concerned (that) new and far-reaching housing tax increases will not have a positive impact on affordability,” Anne McMullin, president of the Urban Development Institute, said Tuesday in a statement. “These half billion in alarming, new real estate taxes also target local buyers and homeowners.”
Beyond the taxation actions, which are expected by the government to moderate property demand and prices, there were few immediate steps to combat tax evasion in real estate, flipping of condo pre-sale contracts and money laundering in B.C. real estate.
Efforts to tackle those problems have been limited by lack of information and the government said it is taking steps on that front before deciding on new rules or enforcement.
“We start with information, then we look at audits, then we look at enforcement,” James said.
The electronic form for the new speculation tax will collect increased property owner information including social insurance numbers, household information, and information on worldwide income. This increased information will be provided to the Canada Revenue Agency.
“Satellite families — households with high worldwide income that pay little income tax in B.C. — will also be captured by the tax,” a statement says.
In another example of a potential enforcement measure, James said the NDP has obtained a commitment from the federal government “to formalize a multi-agency working group on tax evasion, money laundering and housing.”
But this is an extension of an existing working group already put in place by the previous B.C. government, and there is no plan or even a general idea of what investigative resources will be available, and when a multi-agency enforcement team could be in place, or who will fund it, James acknowledged.
“This will have to include more jurisdictions taking part, so we are having those conversations,” James said.
James said the NDP’s affordable housing plan also addresses property transaction loopholes, and her government intends to set up an internal-to-government database of assignment transactions of condo pre-sale contracts. These are a type of property transaction currently conducted as private contracts among developers and often-hidden speculative buyers.
Critics say through repeated pre-sale contract reassignments, the most wealthy of global citizens get first dibs on low condo prices in B.C. These buyers never have to appear on a property transaction record, which raises concerns about tax evasion, James said. And the effect, according to some experts, is that when a person who lives and works in B.C. finally buys a built unit, the price will have risen significantly.
“This information will be shared with federal and provincial tax authorities so they can make sure taxes are paid,” a statement says.
Notably, the NDP’s plan stops short of taxing re-assignments of a condo pre-sale contract by a foreign buyer, which was an idea floated by the NDP in the run-up to the 2017 provincial election. The collected information could be applied to taxation plans in the future, James said.
“A number of the pieces (in the new plan) start with information, and we need that to move on to audit and enforcement on people who are avoiding taxes,” James told reporters.
The onus will be on developers to produce these records, but it is not yet clear how the government will enforce compliance from developers and their condo pre-sale clients.
There are also measures to collect much more information on the true ownership of property in B.C., the government says, and to share tax and property transfer information with federal tax and law enforcement authorities.
“Lack of transparency in the land registry means it is not clear who owns nearly half of Vancouver’s most expensive properties,” a ministry statement says. “This is wrong.”
The government will now require additional information on beneficial ownership on property transfer tax forms — which could reveal the true identify of owners veiled by numbered and offshore shell companies or stand-in buyers — and build a registry of ownership that will be administered by the Land Titles office. The registry will be publicly available and shared with law enforcement. These are reforms that have been pushed by international financial transparency watchdogs, and already adopted by some developed countries.
James said this reform will help prevent tax evasion and money laundering in B.C.
Michael Geller, a Vancouver developer and urban planning professional, said the NDP’s new framework on enforcement and limiting speculation is “pretty comprehensive” and could be very powerful, if the government follows through with enforcement.
“They’ve raised the hammer but they haven’t quite hit the nail yet,” Geller said Tuesday, after reviewing the plans. “These measures could have a dampening effect on the market.”