Part 1 of a two-part series
(Update, March 29: The story has been updated to clarify details about both the retroactive exemption and taxation of homes owned by businesses. A previous version of this story had not included the August 2 retroactive exemption date. As well, some details about the tax as applicable to foreign nationals who set up companies in B.C. have been clarified.)
If you think the BC Liberals got tough on foreign buyers last year, get ready for an even rougher ride for foreign nationals buying B.C. homes if the BC NDP wins the May 9 provincial election.
On August 2, the Liberals slapped a 15% foreign-buyer tax on resale home purchases in Metro Vancouver, a move largely blamed for a subsequent collapse of detached house sales, which immediately plunged as much as 70% in higher-priced municipalities. In February, seven months after the tax was introduced, Metro Vancouver detached sales remain 47% below the pace of a year earlier and average prices have fallen 4%.
Based on real estate board figures, the tax has wiped $2 billion in equity out of the Metro Vancouver housing market, or about twice what B.C.’s Ministry of Finance had expected.
In a recent forecast, the Canadian Real Estate Association said B.C. housing sales will plunge 17.5% in 2017, the worst year-over-year decline in Canada.
Earlier this month, the province moved to water down the foreign-buyer tax, lifting it on international citizens who hold a B.C. work permit and pay taxes in the province. Premier Christy Clark also suggested there might be compensation for such people who had paid the tax on a home purchase; those individuals who purchased a principal residence on or after August 2, 2016, will be able to apply for a retroactive exemption.
But the original tax was not broad enough, said David Eby, the NDP housing critic and MLA for Vancouver Pont Grey.
“The problem with the foreign-buyer tax, unfortunately, is it doesn’t affect anyone who got into the market before the tax was introduced,” Eby told Business in Vancouver.
Eby said that, under the NDP’s proposed Housing Affordability Fund and Speculator Fee Act, a foreign national who did not pay taxes in B.C on his or her income would be subject to a retroactive foreign-buyer tax on all B.C. home purchases, regardless of how long the properties had been owned. Eby said an NDP government would apply a 2% tax on the assessed value of all such property.
It is retroactive in that it applies from when the tax was introduced in legislature.
The NDP would also close what Eby termed two “loopholes” in the foreign-buyer regulations: the use of trusts and other corporate vehicles to disguise home ownership and the exemption on transactions of pre-sale condo assignments.
Currently, the foreign-buyer tax does not apply to any foreign national who sets up a company in B.C. as long as no more than 25% of the shares are owned offshore, said Christine Duhaime of Duhaime Law in Vancouver, who is considered an expert on Asian real estate.
According to the provincial government, however, if a company was established in B.C. for the purpose of avoiding the tax, they would still be assessed.
Eby said the NDP would require that the owners of the property be disclosed and “whenever the beneficial benefit is transferred, through selling shares in the company, or any manner, the property transfer tax would have to be paid.”
The NDP would also move to police and tax transactions of sales contracts for pre-sale condos. These are know as assignment sales.
According to the Finance Ministry, all pre-sale contracts on new homes, not just condominiums, are not subject to the property transfer tax until the home is finished and a title transfer completed.
“[The Liberals] left the speculation of pre-sale condos out of the tax,” Eby said, suggesting it was done to benefit its major donors in the real estate and development industry.
He added that the NDP would require registration of all pre-sale contracts on new homes, and the foreign-buyer tax would be triggered by the sale of such registrations, not just on transfer of title.
Metro Vancouver real estate agents say such extra regulations and restrictions would increase uncertainty in a residential market that is already struggling.
“Confidence is just slowly starting to come back,” said Vancouver Royal LePage agent Adil Dinani who has worked in the Metro Vancouver for 13 years. “We don’t need any more shocks in this market.”