B.C.'s new package of tough measures takes aim at tax evaders who stash money in real estate, hide their ownership and speculate in the increasingly pricey market.
The foreign buyers tax is coming to Greater Victoria, Nanaimo, the Fraser Valley and the Central Okanagan Regional District, and is being increased to 20 per cent on the purchase price from 15 per cent in markets where it is applied. New taxes are coming in for speculators, and buyers of luxury properties will pay more.
These moves are underway as capital region citizens watched home prices become unaffordable to many amid a tight rental market with a vacancy rate of just 0.7 per cent.
Finance Minister Carole James said in her Tuesday budget speech that B.C. is facing a housing crisis. She predicted the new measures “will return a sense of fairness.”
“What we are looking to do is to moderate the market,” she said.
B.C. will monitor impacts and make adjustments if needed as measures are rolled out, she said.
Jock Finlayson, executive vice-president of the Business Council of B.C., said: “It’s quite unprecedented in the housing market to have several measures like that brought forward so we will see how it filters through and affects the market. We don’t know at this point.
“It could be disruptive. It may be nothing more than a hiccup.”
Government initiatives will impact the upper end of the market, Finlayson said.
About half a billion dollars of additional revenue generated from the various housing-related announcements will go to support government afforable housing efforts and other government programs, he said.
New reporting rules for buyers, a public registry to reveal who actually owns a property, and sharing new information with the federal government to fight tax evaders will all be required by the province.
“Countering tax fraud starts with better information sharing,” James said.
B.C. is aiming to end murky home ownership.
“Numbered companies, offshore and domestic trusts, and stand-in owners hide the true source of the capital that is flowing into our real estate market,” James said.
“We are going to change that.”
Lack of information is a “real gap” and the first step in auditing and enforcement, she said.
James referred to condo-flipping, which sees units being sold multiple times before they are even lived in.
“We wonder if those people have paid their fair share of taxes,” she said.
Developers will be required to collect and provide comprehensive information about pre-sales. Condominium are frequently marketed through pre-sales agreements before construction is finished.
Foreign buyers are expected to deliver $35 million in taxes in the 2018-2019 year, and $40 million the next year.
The majority of buyers in the Victoria area are domestic.
Between April and the end of December last year, foreign buyers bought 343 properties in the capital region, representing 4.1 per cent of all sales.
They spent $261 million, of 4.8 per cent of value, out of $5.4 billion.
B.C. will be requiring more disclosure by foreign buyers including: information on worldwide income, household information, and social insurance numbers. Relevant information will be shared with Canada Revenue Agency.
The new speculation tax applies to international and domestic buyers who do not pay income tax in B.C and might leave their homes vacant.
“B.C.’s real estate market should not be used as a stock market,” James said.
The measure "will penalize people parking their capital in our housing market simply to speculate, driving up prices and removing rental stock," she said.
The speculation tax is expected to bring in $87 million in the 2018-2019 tax year and $200 million in the next year.
Luxury home buyers will pay more.
A new property transfer tax on homes worth more than $3 million will bring in $81 million more in each of the coming three years. The tax is rising to five per cent of a property’s value from three per cent.
The capital region is home to many luxury properties valued at $3 million and more. These homes are often along the waterfront in municipalities such as Oak Bay and North Saanich. Some are occupied only part time.
It remains unclear how the speculation tax will affect people who have more than one home or hold a vacation property in B.C.