Market values go up while buyers wait to move in, unfairly increasing transfer tax
Finance Minister Gary Collins is offering a reprieve to buyers of pre-sold condos facing soaring property transfer tax bills.
Collins announced Tuesday legislation to apply transfer tax to the original purchase price of such strata units, rather than the market value when the units are registered with the Land Titles Office and ready for occupancy.
That’s welcome news to thousands of pre-sale buyers like David Delusignan, who bought “a hole in the ground” at Pacific and Seymour in Vancouver in June 2002 for $252,000.
His one-bedroom and den condo at Aqua at The Park is already valued around $350,000. If price trends hold his transfer tax could double under current rules by the time the home is ready in June, 2005.
“This announcement is great news,” said Delusignan, a sales manager. “I had the taxes all budgeted out when I bought, and I had no idea it could change by the time I moved in. I called my MLA and told him it was crazy and unfair.”
Collins acknowledged existing tax rules had “unintended consequences,” with many homebuyers required to pay significantly more property transfer tax than they expected when making their downpayment.
“This is especially hard on first-time homebuyers who, after saving enough of their hard-earned income to get into one of Canada‘s hottest real estate markets, receive a much bigger tax bill than anticipated.”
Extra property transfer tax bills of $4,000 and more were first reported in The Vancouver Sun in April.
“The way the system is now, people don’t know how much tax they will have to pay when they actually purchase their homes,” Collins said Tuesday. “This doesn’t make sense, it is not fair, and that is why we want to fix it.”
Buyers who have already paid the extra tax may be eligible for a refund under the new rules, Collins said.
That was welcomed as “thrilling news” by buyers like Sam and Randi Winter, who paid an an initial $11,600 in transfer tax, then were charged an extra $4,700 on their 1,500-sq.-ft. apartment at The Concord on False Creek.
“It is especially good news for the retired people who are on fixed incomes,” said Sam Winter, a dentist.
He said his luxury building also houses many “significant contributors” to the provincial Liberal party, “and they all said that they would deduct this property transfer tax increase from their contributions.
“The government also received a lot of letters from lawyers telling them they couldn’t get away with this.”
For buyers who have recently received an assessment notice, but have not yet paid the extra tax, Collins said the government will not pursue collection until the legislature has had a chance to consider the proposed changes in the fall.
“If the changes are passed, the assessment will be reconsidered under the new rules,” Collins said.
Houtan Rafii bought a two-bedroom unit at the Domus building on Homer about two-and-a-half years ago for $300,000 and moved in last November. His property transfer tax reassessment is pending on a value today that is more than $400,000.
Rafii, who works in real estate development, said the reprieve will not only help him as a homeowner but also “help to keep the market happy and healthy. We have gotten a lot of feedback from our purchasers saying this is an unfair law.”
Collins said the proposed legislation will be retroactive to Dec. 31, 2002, which the government believes will capture every buyer hit with significant tax increases. It will not apply to single-family dwellings, which generally are not sold on a sufficiently long pre-sale basis to generate a tax reassessment.
“We haven’t found a problem with single-family dwellings,” Collins said. “If it arises, we will review it in the same light.”
Nor will the legislation raise property transfer tax exemption thresholds for first-time buyers that have failed to keep pace with rising property values, resulting in a revenue windfall for the government.
The tax, which is charged at one per cent of the first $200,000 of property value and two per cent on the balance, generated about $520 million in the last fiscal year. That compares with $242 million in 1999-2000.
Subject to several conditions, first-time buyers can escape the tax if their unit is worth $275,000 or less in the Lower Mainland and Victoria, and $225,000 elsewhere in B.C.
© The Vancouver Sun 2004