The NDP budget includes a 30-point housing plan that is designed to stabilize the housing market. This plan outlines a new speculation tax on people who own empty homes but pay no income taxes in B.C., expands the current transfer tax and foreign buyers' tax, and cuts a loan program for first-time buyers.
Finance Minister Carole James said she hopes this and other changes will cool real estate costs, but would not predict how much, or what will happen if they take a bigger bite out of housing values than intended. "We are treading on new ground," she says.
Part of the plan includes a new levy, or "speculation tax," which will be applied to more than 15,000 residential properties in Metro Vancouver, the Fraser Valley, the regions of Victoria and Nanaimo on Vancouver Island, and Kelowna. The tax rate, charged on a property's assessed value, will be 0.5 per cent in 2018, and then 2 per cent in the following years. This means if an overseas owner who is not a Canadian citizen owns a $1,000,000 home in Victoria, they will pay $5,000 this year, then $20,000 in following years. "This will penalize people parking their capital in our housing market simply to speculate, driving up prices and removing rental stock," Ms. James said.
There are some unintended consequences of this tax. Albertans who own vacation properties in BC are feeling the sting and they are not happy about it. The proposed tax has already been dubbed a “punishment tax” on chat sites frequented by Albertans with vacation homes in B.C. Many feel it is discriminatory and suspect the motivation behind it is the ongoing oil pipeline ﬁght between the two provinces. Under the plan, a $500,000 condo in Kelowna owned by an Albertan could face an additional $10,000 tax bill annually.
In a recent interview with MacLean’s Ms. James said, “It doesn’t matter if you’re from Toronto, Montreal, Calgary or overseas, the speculator tax will impact those who choose to speculate or take housing stock off the market.”
Out of province homeowners with vacant properties in BC will not know until the fall legislation whether the provincial tax will apply to their properties, and if so, whether they will qualify for any exemption that will provide an income tax rebate the next year.
Property Transfer Tax
The Property Transfer Tax has been increased for residential properties on the portion of the Fair Market Value exceeding $3,000,000. The Property Transfer Tax rate is now on per cent on the first $200,000, two per cent on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, three per cent on the portion of the fair market value greater than $2,000,000, and finally, five per cent on the portion of the fair market value greater than $3,000,000.
Additional Property Transfer Tax (Foreign Buyer Tax)
The current tax on the purchase of a home by a foreign buyer rose to 20 per cent and was expanded to communities outside Metro Vancouver, including the Fraser Valley, Nanaimo, the Central Okanagan and the Capital Regional District. "We think that foreign buyers should contribute more for the high quality of life they enjoy in our province," said Ms. James.
Grandfathering provisions will exempt transactions from the Additional Property Transfer Tax in the above areas if registration occurs before or on May 18, 2018 and the property transfer is subject to a written agreement dated on or before February 20, 2018 (a definition of written agreement has not been provided).
First Time Home Buyers Program
The NDP axed the former BC Liberal government's program that provided interest-free loans to first-time homebuyers. The program offered a second mortgage to qualified buyers and did not require any interest payments or payments on the principal for the first five years. While helpful, many critics felt this program encouraged first-time home buyers to take on too much debt.
The NDP budget represents a strong shift toward wealth redistribution. The additional tax revenue they raise will be approximately $2-billion towards their efforts to tackle B.C.'s affordability issues.