Don Cayo
Sun
The following people have at least one thing in common:
– An elderly woman waiting months for a hip replacement.
– A young Yaletown couple with a first child on the way.
– A laid-off forest industry worker in a town with no future for him or his family.
– An up-and-coming executive who just accepted a promotion at a branch in another B.C. city.
You don’t see the common thread?
Then odds are you’re not a provincial tax collector.
If you were, you’d be rubbing your hands in glee. After all, it’s these folks and others like them who pay a big chunk of your salary.
These are people whose circumstances — whether bad luck or good — mean they’ll be moving house sometime soon. And assuming they’re not among the growing number of British Columbians who don’t own a home and can’t afford to buy any time soon, each move means big bucks for the taxman.
It adds up to $9,500 in the not-at-all-hypothetical case of the elderly woman and her husband, says Abbotsford realtor Dave Andrews. A big property transfer tax liability will be generated first when they sell the multi-storey home she can no longer get around, then again when they buy a more accessible condo.
To put it bluntly, the government will reward itself with $9,500 for no other reason than its own slack-assed failure to provide timely care. No wonder so many voters fairly spit when they speak of this tax and the politicians who so blithely defend it.
As I wrote last week, “In a perfect world, the property transfer tax would be scrapped. It’s an ill-conceived policy. It’s a drag on business start-ups, and an extra cost on the already daunting cost of home ownership.”
In this imperfect world, however, logic and sound policy don’t cut it when politicians convince themselves they need money.
So it’s worth a moment to get your head around just how much money is at stake, and just how pernicious is the auto-pilot mechanism that allows it to grow by leaps and bounds without the inconvenience of the government having to pass a law or being forced to defend this tax-grab in the legislature.
The first thing that has driven prices is the more-or-less doubling of property values in B.C. in the last decade. The increase in average MLS residential prices in the province as a whole is from $220,500 to $439,000. (In Metro Vancouver it’s from $287,100 to $570,800, and in the Fraser Valley it’s $224,500 to $423,800.)
The second thing is that the percentage most people pay is also up a lot. PTT is assessed at one per cent on the first $200,000, and two per cent on anything over. So back in ’97, when the average selling price was about $220,000, the one-per-cent rate applied to the bulk of sales value. Today, with the average price nearly $440,000, the two-per-cent rate applies to most of the sales value.
Thus, in a decade when the average price of homes has just about doubled, the government’s take has way more than quadrupled. It has gone from $224 million in ’98-99 to $1.l billion now.
Yet, despite this astonishing windfall, it’s becoming apparent that the revenue department is making a concerted effort to be aggressive — if not downright mean — in collecting this tax.
Tax specialist Paul Sullivan of Burgess Cawley Sullivan & Associates tells me he usually has one or two PTT cases a year, but at the moment he has a couple of dozen on his desk. They involve some very large transactions, he said, and the department is being unusually and unnecessarily aggressive — for example, placing a lien on several of one developer’s Western Canadian properties because a few tens of thousands of dollars are in dispute.
Similarly, the volume of personal stories I’m hearing from readers is far higher than ever before. A low-income elderly woman is being penalized thousands for “lying” when, she tells me quite convincingly, she was merely confused. A couple gets dinged for thousands more when, 25 years after they married, he gets around to putting half their communal property into her name. A young woman loses her first-time-buyer exemption when she lets a friend occupy her new condo while she pursues a learning opportunity abroad. Couples get dinged with PTT when they split up and one retains the family home. Cottagers who’ve seen their Crown-land lease rates soar exponentially get nailed with PTT on the value of their own cottages when they eventually buy. And on and on . . .
Nor is the pernicious effect of this tax merely a once- or twice-in-a-lifetime hit for most British Columbians. As is spelled out in the accompanying story (“What 1% or 2% really costs”), its impact can — and often does — drag you down for a long, long time.
WHAT 1% OR 2% REALLY COSTS
If Dave Andrews’s daughter in Alberta and his son in B.C. each have good jobs and $30,000 to go toward their first home, here’s what they can expect, according to the thoughtful calculations of their dad, an Abbotsford realtor.
She’ll be able to put it all into a downpayment, and leverage a $570,000 mortgage to buy a $600,000 home with a suite to help meet the monthly payments.
He’ll spend $7,500 off the top to cover B.C.’s property transfer tax. Mortgage companies won’t consider that part of his downpayment, so he’ll be eligible for only a $450,000 loan. That’s not likely to buy him a home with a suite, so he’ll get no mortgage-helper.
She’ll be left with payments of about $2,400 a month, plus the $1,000 she gets in rent. He’ll have to pay $2,730. So he’ll need $5,400 a year more in pre-tax income to cover those stiffer payments.
If both properties appreciate 15 per cent a year — not unrealistic in the hot Vancouver or Calgary markets — she’ll build $90,000 additional equity in the first 12 months. With his lower-value property, he’ll gain just $54,336.
Thus, “My son has $35,664 less equity with $3,600 more annual expenses in his first year,” Andrews said in a presentation this spring to the legislature’s select standing committee on service and finance. “The monthly payments continue for 25 years for my son in B.C. with a cost of $90,000 more than his Alberta sister will pay. . . . This is all thanks to the transfer tax her brother had to pay from his identical $30,000 downpayment.”
And this means, of course, that the daughter will have far more cash if she decides to trade up to a newer or larger home, or to move closer to work. And the son’s smaller pool of cash will be further eroded by a second bite from property transfer tax if he ever changes houses.
Andrews works through several possible scenarios that all add up to hundreds of dollars in higher monthly payments and tens of thousands in less equity.
Sadly, the hit on his son’s finances is not balanced by a corresponding gain to the B.C. treasury. Every $1 the province gains in PTT revenue will, thanks to the magic of compound interest, cost his son well over $2.
© The Vancouver Sun 2008