The British Columbia government is taking a tough stance on shady real estate activity and tax fraud, with new rules targeting both foreign and domestic investors.
The 30-part housing plan, announced in the provincial NDP’s first budget, will make it tougher for foreign buyers to purchase B.C. real estate, and will improve disclosure of who owns what in the province.
Expanding the Foreign Buyer’s Tax
Perhaps the most dramatic measure is increasing the controversial foreign buyers’ tax from the previous 15 per cent to 20. Its reach will also be greatly expanded beyond Metro Vancouver to include the Fraser Valley, central Okanagan, and Southern Vancouver Island. The larger tax will apply to purchases made on or after February 21, though those taking ownership on or before May 18 outside the Greater Vancouver Area may qualify for an exemption.
First introduced in May 2016 to quell hot price growth, the foreign buyer tax has been credited with slowing the pace of sales within the province, thought it doesn’t appear to have improved affordability; prices remain on an upward trajectory, reaching a benchmark price of $803,700 in January.
Speculation Tax on Vacation and Investment Properties
The province is also attempting to head off real estate tax avoidance by enforcing a “speculator tax” which, once implemented in the fall, which will apply to all foreign and domestic property owners who don’t pay B.C. income tax. The tax rate will start at 0.5 per cent in 2018, but will be hiked to a full 2 per cent as of next year and will include vacation homes owned by out-of-province residents in addition to investment and vacant properties.
It will also apply to ‘satellite’ families – spouses and children who reside in BC while the main breadwinner works – and pays taxes – elsewhere.
“This is a major step to end speculation in our market,” said NDP Finance Minister Carole James to reporters at the budget’s announcement. “This tax will penalize people who have been parking their capital in our housing market simply to speculate, driving up prices and removing rental stock.”
“B.C.’s real estate market should not be used as a stock market, it should be used to provide safe and secure homes. That’s why we’re cracking down on speculators who distort our market.”
Busting Buyers’ Secret Identities
The housing plan also takes aim at the province’s opaque tax rules, which have made it possible for some real estate investors to avoid paying altogether. One sea change will be to identify the true buyers of real estate deals made via numbered corporations – rather than remain anonymous, this information will be made public in a new land register. Under the old system, it is unknown who owns roughly half of the province’s high-end properties.
Developers will now be required to collect and report the identities of pre-construction buyers who sell their units on assignment before the project is finished. This buyer information has been kept confidential in the past, meaning a unit could be sold multiple times – driving the price higher – without disclosing who has profited.
New Support for Affordable Housing
In addition to the new taxes, the provincial government also unveiled increases to the amount of Property Transfer and School Taxes paid by owners of properties over $3 million, as well as a $6-billion investment to build 114,000 affordable homes – the largest spend in B.C.’s history.
They have also discussed increasing grants for elderly renters, as well as potentially introduce a program for low-income residents, that could include rental-only development zones.
Association Says Measures Miss Real Issues
The British Columbia Real Estate Association says that while it welcomes efforts to improve housing affordability, Budget 2018 will fail to meet its objective as it doesn’t address the chronic lack of supply in the province, nor reduces steep tax hurdles for everyday buyers.
“…The government missed the opportunity to help home buyers across the province by increasing the thresholds to the Property Transfer Tax or index those thresholds to reflect the changing real estate market,” BCREA writes in a statement.
“Additional taxes, whether targeted at foreign buyers or speculators, do not reduce the gap between when a housing project starts and is available to purchase.”
The association also calls for more transitional rules to protect buyers and sellers as the new taxes are put in place; many deals were upended when the foreign buyer tax was first implemented, surprising buyers with hefty additional costs and leaving local sellers in a lurch.
“When the Foreign Buyer’s Tax was introduced in 2016, consumers and REALTORS were frustrated by the number of collapsed deals due to how the tax was introduced,” states CREA. “At the time, the Association called for grandfathering of transactions underway to ensure a smooth transition. While the province has indicated transitional rules for the expansion of the Foreign Buyer’s Tax to other parts of B.C., the Association believes this should apply to all transactions.”
Could it Happen in Ontario?
It remains to be seen whether the Ontario provincial government will follow suit with B.C.’s new measures. Last April, despite previously stating otherwise, Premier Kathleen Wynne unveiled a 15-per-cent Non Resident Speculation Tax for homes purchased in the Golden Horseshoe as part of the Ontario Fair Housing Plan. While foreign buyer statistics have since indicated that the presence of out-of-country buyers remains low in the province, domestic speculation, such as condo flipping, and vacant investment homes, are considered top issues plaguing supply and affordability in the region.