VICTORIA — New legislation introduced by the British Columbia government intends to charge a 15 per cent additional tax on foreign entities buying residential property in Metro Vancouver. Here are some facts about the proposed law:
Fighting Avoidance:
— All property transfer transactions will be subject to audits and all property transfer tax returns will be reviewed and verified.
— The audit period is six years from the day a property is transferred.
— Failure to pay may result in a fine of up to $100,000 for individuals and $200,000 for corporations, or up to two years in prison.
Defining foreign entities:
— Classified as foreign nationals, foreign corporations or taxable trustees.
— Foreign nationals are transferees who are not Canadian citizens or permanent residents.
— Foreign corporations are not incorporated in Canada, but controlled by a foreign national or other foreign corporation.
Application of the tax:
— Tax is in addition to the property transfer tax already in place of one per cent below $200,000, two per cent between $200,000 and $2 million, and three per cent on the remainder of a purchase.
— Does not apply to non-residential property.
— Does not apply to Tsawwassen First Nation lands.
— Applies to any foreign entities proportion of the share even if the transfer is between relatives, is a result of an amalgamation or if it's moved to a surviving joint tenant.
— Applies Aug. 2, regardless of when the contract of purchase and sale was entered into.
HOUSING MARKET OBSERVERS QUESTION WHETHER VANCOUVER FOREIGN BUYER TAX WILL WORK
TORONTO — A tax intended to calm soaring real estate prices in Vancouver may be difficult to enforce because the foreign homebuyers it's aimed at may be able to get around it, experts say.
The B.C. government's plans to tackle housing affordability in Metro Vancouver with a 15 per cent tax for foreign buyers came under scrutiny Monday from housing market observers.
Foreign nationals could avoid the tax, which would take effect on Aug. 2, by purchasing properties through locals — something that is already suspected to be common practice.
"I would be very surprised to see a lot of people buying houses as foreign individuals or foreign corporations," said Thomas Davidoff, a professor at the Sauder School of Business at the University of British Columbia.
"The question is, will buyers be able to successfully ... hide their identity by having a local permanent resident, a local corporation or a local family member who is a citizen through which they can funnel cash?"
Josh Gordon, an assistant professor at Simon Fraser University who has studied the issue, said it's common for money made overseas to flow into Vancouver's real estate market through local residents — for example, a foreign national purchasing a home through a spouse or a child attending a Canadian university.
"Canadian permanent residents can buy properties as proxy buyers and they won't be subject to this tax, because they won't be considered foreign buyers," said Gordon.
Rather than charging a tax to foreign nationals, Davidoff said he would have preferred to see a policy that provides tax breaks to homebuyers who can demonstrate they're paying local income taxes.
"Why drag nationality in when the real question is, 'Are you a local worker?'" he said.
A number of other jurisdictions have imposed rules restricting foreign investment in their real estate markets, including Hong Kong, Singapore and Australia.
In a report published earlier this year, CIBC economist Benjamin Tal said it was too soon to say whether Australia's rules — which were implemented in last summer and restrict foreigners to newly built houses and apartments — are having the desired impact.
"But there are some early signs from Australia showing that it's working," said Tal, noting that the share of foreign nationals in new housing demand has fallen.
Gordon said data from other jurisdictions suggests that taxing foreign investment can help cool housing markets by slowing, and sometimes even reversing, price growth.
"But in terms of achieving affordability, substantially reducing prices, generally speaking these types of surtaxes don't get you there," he said.
Complicating matters is the fact that it's hard to assess whether any particular price movement was the result of the tax policy or some other factor, said Davidoff.
"It's very hard to hold all else constant in a major city," he said.
