“Good intentions can often lead to unintended consequences” – Tim Walberg
This post is not about the tax itself: whether the tax is right, wrong, too much, too little, etc. that is all for another conversation. The majority want to implement a tax on foreign buyers. Fine, I get it. it makes sense on many levels.
But let’s do it with some class. As Canadians are we not known for being fair in our dealings?
The topic of this post is the patently unfair retroactive implementation of this tax. Such an approach is tactless, lacks foresight, and should be embarrassing to any self-respecting CDN that ever looked a person in the eye and while shaking their hand said ‘yes, we have a deal’.
Did the BC Gov’t not learn anything from the HST implementation?
The Back Story
Why is this happening at all? Partly due to growing anger about rapidly rising prices. Anger that needs to be directed somewhere, at somebody. Sadly it is being channelled toward a very specific group of people, largely due to inaccurate or flat-out misleading headlines like this one:
Let’s do some math on this headline. ‘5% of BC homes’ (that’s 55,000 of 1.1 million total properties) were purchased by foreigner buyers? Leaving 95% to go?
The above headline was not written by somebody with a grasp of basic math. Nor was the opening sentence:
Citing freshly collected data, the B.C. government announced that overseas nationals bought approximately 5 per cent of homes in the province over just 19 days last month.
Extrapolating the math suggested in the headline indicates that ~55,000 of the 1.1 million privately owned properties in BC were bought by foreigners. In other words at this pace all 1.1 million will be owned by foreigners in just another 380 days.
Just over a year, and that is it.
Clearly this is bad math, bad writing, and an inaccurate headline. But it is this sort of error, combined with hyperbole and a twisting of numbers, that has so many of us twisted in knots.
So, the Government of BC to the rescue with their kneejerk reaction tax.
(Hey gang, relax. The election is still a year away, and you really could have taken an extra few days and considered the unintended consequences of your actions.)
The Core Story
The nuts & bolts of this new tax:
- A foreign national is a person who is not a Canadian citizen or permanent resident.If it is company that is purchasing, a foreign company is one that is not incorporated in Canada, or incorporated in Canada but controlled in whole or in part by a foreign national or other foreign corporation.
You, my friends, are out of luck. Just like one student we know of whose parents were assisting her on the purchase of a $400,000 condo to live in during her remaining six years of studies. Contract entered into three months ago, completing in about four months. Boom! $60,000.00 extra please, in addition to the $140,000.00 minimum down payment required, or else forfeit your $80,000 deposit to the developer.
If she completes, the government wins. ($60,000 in new tax revenue)
If she cannot raise the extra $60K, the developer wins. ($80,000 deposit forfeited)
Either way, she and her family lose. And we as CDN’s have our reputation for fair dealing evaporate.
At the very least, this British national training to be a doctor is getting quite the slap in the face for having the audacity to try and put down any kind of roots while living here for the next six years.
She entered into a contract in good faith, and now one of the things we CDN’s hold so dearly ‘stability of Government’ has been thrown out the window as we allow the rules of a firm and binding contract to be rewritten midstream. Negatively impacting this person, and hundreds of others.
- The increased tax applies only to properties in the Greater Vancouver Regional District, and does not apply elsewhere in the province, or the Tsawwassen First Nations Lands.
Whistler, and other recreational destinations, just let out a long sigh of relief. Internal sales stats suggest that for many months in Whistler up to 1 in 4 buyers is a foreigner. Their market would have been hit hard by a restriction like this.
It may still be, in the opposite direction, once we see where foreign capital starts to flow to as alternatives to the GVRD.
- The tax only applies only to residential properties, not commercial.
Commercial real estate investors need not worry. For the BC government this would, of course, have been a much more concerning group to annoy. Much easier to hammer on the individuals here learning, working, and trying to become a part of the community. Especially when the public perception has been as warped as it has to assume all foreign buyers are multi-billionaires from one specific country.
- The increased tax is effective August 2, 2016, regardless of when the contract is signed. Even if the contract was signed weeks, months, or in the case of condo pre-sales years ago, if it completes after August 2, 2016 there is a higher tax. End of story.
Refer back to our student example in point #1. A pretty devastating announcement for several people. Including Mac Kerman – was he really the target that everyone had in mind?
Would it not have been possible to consider:
- An exemption for students?
- An exemption for gainfully employed temporary workers?
- An exemption for those with Permanent Resident status applications pending?
- An exemption for these groups purchasing below $475,000.00 or $750,000 – along the same lines as first-time buyer rules.
- A sliding scale? Starting at 5% and rising to 15% based on purchase price.
What happened to being reasonable?
Could we not possibly have differentiated between foreign buyer and foreign investor?
Cold we not possibly have made an exception for existing contracts?
- The additional tax is payable even if there would normally be an exemption available.Transfers between related individuals, transmission to surviving joint tenant and other such items now attract the additional tax.
- This is notable. This is a form of a death tax. It is a tiny little foothold on the topic. And sure, the target this week is foreign buyers, and foreign inheritors, but it will not be long before talk of a Canadian death tax starts to gain traction.
We already have people who should know better getting the details of this new tax wrong when interviewed. New construction and pre-sale contracts dating back years are indeed 100% affected by this tax, and the many thousands of buyers who entered into a good-faith agreement as long as three years ago on a pre-sale completing as soon as next week are caught in this mess. How is that fair dealing on our part?
One family I spoke with due to complete late next week on a 1.6M$ home have been in Canada for more than two years, they are settling their family here, have professional jobs and are paying their income taxes, but now need to come up with an extra $240,000.00 cash. Simply due to their Permanent Resident status application taking its time winding through the process.
We are thumping these taxpaying resident enroute to becoming Canadians because… why?
Because this is how we allow our government to roll. This how we Canadians do business?
So, too damn bad.
What a slap in the face to these buyers and hundreds of others, as it is to you and I as well. This is not how you personally or I personally do business. Except that on the world stage, as Canadians it looks like it is.
Have you entered into a contract with a Canadian in good faith? Yeah, so what – we will just add a 15% premium at the last minute because our handshake means nothing and written contracts mean even less.
We should all find ourselves a touch embarrassed to be Canadian this week.