The BC NDP’s recently introduced raft of new housing taxes is shaping up to be a political and economic train wreck that will only make housing even less affordable for British Columbians.
Let’s start with the new “speculation tax.” Most British Columbians can support the concept of a new 2% annual tax being levied on foreign owners of residential homes who pay no Canadian income taxes. However, the NDP tax has morphed beyond this relatively supportable proposal developed by academics and economists in 2016, to now capture British Columbian and Canadian taxpayers. Out-of-province Canadian property owners, who already contribute through local and federal taxes, will now potentially face additional annual taxes of tens of thousands of dollars. Of equal concern, many Canadians have bought residences in B.C. and visit for part of the year, until they’re able to retire full time to our beautiful province. Why is government hammering non-speculating tax-paying Canadians, who are often an important part of our tourism and seasonal economies?
In response to the growing outcry from British Columbians and Canadians, Carole James, B.C.’s finance minister, announced changes to the speculation tax that will amend the regions impacted by the tax, and the tax rates, and establish new special definitions and exemptions. Fully implemented, it means a 2% tax for foreign investors, 1% for Canadian citizens living outside B.C. and 0.5% for British Columbians who are Canadian citizens or permanent residents. The areas affected have been narrowed slightly to exclude the Gulf Islands, Juan de Fuca and parts of the mid-Island and upper Fraser Valley.
The B.C. government wants to pretend the speculation tax changes will have little or no impact on British Columbians because we will be in line for a $2,000 tax credit, which effectively exempts the first $400,000 of assessed value.
I don’t buy it.
Once in place, it’ll be too tempting for a big-spending government to expand the areas covered, reduce credits provided and lower exemption levels. Unlike the broadly supported 2016 academic proposal, the NDP tax now penalizes people based on whether they’re Canadian, British Columbian or foreign-based. It is just wrong to penalize tax-paying Canadians, whether from B.C. or not, by falsely suggesting they are all speculators. Furthermore, the manner in which the tax was announced and the uncertainty it created while the government scrambled to provide fixes after the fact demonstrate how poorly thought through these changes were.
Regretfully, it’s not just the speculation tax that hits British Columbians. A significant new school property tax on residential properties worth more than $3 million will now apply. This will be in addition to the existing school tax and importantly is not specifically allocated to the education system, but rather general revenue. It is simply a wealth tax by another name. Because it will also apply to virtually all residential development sites, look forward to potentially hundreds of thousands of dollars in new annual costs for a typical Lower Mainland development site. If the NDP truly wants to ensure only speculators are targeted, the tax should be amended to exempt owners who can provide evidence they have municipal applications underway to build new housing on the sites.
What’s more, the new additional luxury property transfer tax will increase to 5% from 3% on homes valued above $3 million. While the “tax the rich” crowd will take some joy in sticking it to those fortunate enough to live in expensive homes, I’ll remind them that when the property transfer tax was introduced some 30 years ago, 95% of homes were valued below the $200,000 exemption threshold. Now virtually none are.
Finally, and most importantly, the speculation tax as currently proposed, when layered onto the NDP’s new school property tax, increased property transfer tax and foreign-buyers tax, will only make housing affordability even more of a problem. By applying these taxes to development sites bought to provide new housing (including rental units), the provincial government has imposed massive new costs, which will inevitably get passed along to the homebuyer or tenant.
As a former finance minister, these tax changes reek of tax policy being made on the fly. In a shocking admission, the finance minister acknowledged that there was no modelling done prior to introducing these changes. Now the minister is suggesting her recent “tweaks” will largely correct the policy implications she discovered only after the fact. The NDP would be better off refocusing on the original intent of having non-Canadian taxpayers paying their share for the privilege of owning residential real estate in B.C. Hammering Canadians, and particularly British Columbians, makes no sense, especially when it exacerbates the housing affordability issues British Columbians already face. •
Kevin Falcon is the former deputy premier and minister of finance for B.C. Falcon is currently executive vice-president of Anthem Capital Corp.
