Laura Kane
Canadian Real Estate Wealth
British Columbia is raising its foreign buyers tax and expanding it to areas outside of Vancouver, while bringing in a new levy on speculators, as part of a sweeping plan to improve affordability in the province’s overheated housing market.
The New Democrat government unveiled a 30-point housing plan in its first full budget on Tuesday that also increases the property transfer tax and school tax on homes over $3 million, and invests $6 billion in building 114,000 affordable homes over the next decade.
“Our intent is to bring stability to housing prices with these changes and have revenues to invest in building affordable housing,” said Finance Minister Carole James in a speech to the legislature.
“We recognize these are bold actions. But that’s what B.C.’s housing crisis demands.”
The previous Liberal government introduced a 15 per cent tax on homes purchased by foreigners in Metro Vancouver in 2016. Sales slowed for several months before rebounding and prices have continued to rise.
The minority NDP government will increase the tax to 20 per cent and will also apply it to homes in the Fraser Valley, central Okanagan, the Nanaimo Regional District and the Victoria area. The changes take effect Wednesday.
The speculation tax will be introduced this fall. The annual property tax will target foreign and domestic homeowners who do not pay income tax in B.C., including those who leave homes vacant. Satellite families, or households with high foreign incomes that pay little local income tax, will also face the levy.
Exemptions will be available for most principal residences, long-term rental properties and certain special cases, so most homeowners in B.C. won’t be affected, James said.
“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,” she said.
In the 2018 tax year, the rate will be $5 per $1,000 of assessed value. Next year, the rate will rise to $20 per $1,000 of assessed value. It will initially apply to Metro Vancouver, the Fraser Valley, the Victoria area, the Nanaimo Regional District, Kelowna and West Kelowna.
A non-refundable income tax credit will also be introduced to offset the new levy, providing relief for people who do not qualify for an exemption but who pay income taxes in B.C.
Cameron Muir, chief economist at the B.C. Real Estate Association, said the tax could hit B.C. residents who have vacation properties or second homes, as the credit may not be enough to offset it.
It’s also unfair to penalize people from other provinces who own vacation homes in B.C., Muir added.
“That’s a really big tax increase for Canadians who have done nothing wrong but own recreation property in one of Canada’s most amenable climates,” he said.
Asked whether out-of-province owners of recreation properties in B.C. would be subject to the levy, James said the government was still considering possible exemptions.
The government also moved to close loopholes that allow people to skirt tax laws. It’s building a database on pre-sale condo assignments and a beneficial ownership registry that it will share with tax authorities.
The plan also addresses supply through what the government says is the largest investment in housing affordability in B.C. history _ more than $6 billion over 10 years to deliver 114,000 homes. That includes more than 14,000 rental units, 1,750 units for Indigenous people and 2,500 homes for the homeless.
It will increase a grant for elderly renters and expand a program that helps low-income families.
The government said it’s working with municipalities to develop new tools, such as rental zoning, and creating a new office to partner with non-profits and developers to build affordable homes.
Green Leader Andrew Weaver, whose three-member caucus struck a deal to support the minority NDP government, said the speculation tax and foreign buyers’ tax should be applied province-wide.
“We support these first steps, however, our view is that they’re not really as bold as we need to actually deal with the crisis before us,” he said.
The Opposition Liberals said the New Democrats have forgotten about creating revenue and tabled a budget that relies on taxes to pay for its promises.
Finance critic Tracy Redies doubted the government would be able to reach its affordable-housing goals.
“They said 114,000 housing units. They are coming up woefully short on that,” she said.
Thom Armstrong, executive director of the Co-op Housing Federation of B.C., applauded the government’s plan. Taxes on speculators and foreign buyers will help cool the market, he said.
“Anything that moderates demand in the market and has a dampening influence on prices will help the overall situation that our members and clients face,” he said.
Copyright © 2018 Key Media Pty Ltd
ADDITIONAL PROPERTY TAX FOR FOREIGN ENTITIES AND TAXABLE TRUSTEES
1. Has gone from 15% to 20%, effective today.
2. Contracts written before Feb. 20, 2018 with a closing on or before May, 2018 are exempted, but only for Capital Regional District, Fraser Valley Regional District, Regional District of Central Okanagan or Nanaimo Regional District. Note this exemption does not apply in Greater Vancouver.
3. Transfers pursuant to court order, order nisi of foreclosure, separation agreement, transfer from personal rep of deceased’s estate to beneficiary or transfer to surviving joint tenant are also exempt, provided the triggering event occurred before Feb. 20, 2018.
4. This tax applies to the Capital Regional District, Fraser Valley Regional District, Regional District of Central Okanagan, Nanaimo Regional District and Greater Vancouver. The areas for each region can be found at https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax/bc-areas
5. Only on residential property; if property is farmland or commercial with a residential component, tax applies on the residential component.
6. Exemption for BC Provincial Nominee Program still applies.
SPECULATION TAX
1. Tax is meant to target foreign and domestic homeowners who do not pay income tax in B.C.
2. Tax will apply to same areas as foreign buyers tax apart from Okanagan, where it only applies to Kelowna and West Kelowna.
3. Starts in 2018 at $5.00 per $1,000.00 of assessed value, goes up to $20 in 2019.
4. Not sure how this will affect vacation homes, nor when this tax is payable.
PROPERTY TRANSFER TAX
1. Tax rises from 3% to 5% on value of homes over $3,000,000.00.
2. Remains at 1% on first $200,000.00, 2% on amounts between $200,000.00 and $2,000,000; 3% on amounts between $2,000,000.00 and $3,000,000.00 and 5% on amounts over $3,000,000.00.
PRE-SALE CONDO ASSIGNMENTS
1. Developers will collect and report information about pre-sale condo purchases; nothing else in budget about pre-sale contracts or assignments that we have seen.
B.C. HOME OWNER SECOND MORTGAGES
1. This program is now cancelled – don’t think it was used much anyway.