The new B.C. Foreign Property tax was put into effect earlier this month on August 2nd, 2016. It has been over three weeks and changes are already noticeable.
The question on everyone’s mind is: What will this do to the housing market?
Depending on who you are this could mean a couple of things. Here is a breakdown of what to expect if you are a new house buyer, new to Canada, future home buyer, or a home owner.
What is this tax?
The Additional Property Transfer Tax on Residential Property Transfers to Foreign Entities in the Greater Vancouver Regional District Property Transfer Tax Act is a 15% extra tax of the value of the property. This applies to purchasing new property such as a house, rentals, and leases.
It also applies to the following transfers:
- Between relatives
- Between new marriages or partnerships
- Between a surviving joint tenant
- If you become a transferee or trustee
This is tacked on top of the general property tax. To break it down simply in an example:
Property: $1 million, Tax: 15%
You pay: $1 million x 15% = $1,150,000
Who is it directed to?
The provincial government information sheet defines foreign nationals and foreign corporations as follows:
Foreign Nationals: people who are not Canadian citizens or permanent residents, including stateless persons.
Foreign Corporations or Taxable Trustees: Companies not incorporated in Canada or outside owned.
This basically means anyone who isn’t a Canadian citizen or currently does not have their Permanent Resident (PR) status will have to pay the tax. This includes people who have working permits or getting their PR status.
Where does it apply?
List of places the new tax applies to:
- Bowen Island
- Langley City and Township
- Lion’s Bay
- Maple Ridge
- New Westminster
- North Vancouver City and District
- Pitt Meadows
- Port Coquitlam
- Port Moody
- West Vancouver
- White Rock and Electoral Area A
Why was this Put in Place?
The idea for the new tax was part of a housing affordability initiative to help cool off the housing market.
Here is a list of the intended objectives:
- Make home ownership more affordable
- Establishes a fund for market housing and rental initiatives
- Strengthen consumer protection
- Provide City of Vancouver tools to increase rental property supply
How does this Impact Buyers/Sellers?
The new tax ultimate affects foreigners and locals buying decisions.
Local New Home Buyers:
- Potentially more homes available on the market
- Access to more government assistant programs like new home buyers’ program
- New houses being built provides more supply
Working Permit/Non-Canadian Citizens:
- Tax will apply
- Should consider the extra cost and see if your within budget
Current Homeowners looking to sell:
- May witness a decline in offers
- Be wary of current offers and see if sale is still active
- Consider some offers may back out
Foreign Investors and developers:
- News of the tax may increase demand for houses
- The new government housing projects may increase the opportunity for residential housing development
- Current supply levels may increase due to other investors pulling out
Does this tax mean that foreigners will no longer buy within the Greater Vancouver Region (GVR)? Well not really, GVR is still a nice place to live. Even with the higher tax some people are willing to pay extra to live here. GVR has a lot of offer and to some people it may be worth it to invest to live here.
Current home owners may fear that the market cooling down will devalue their house value. This may be true but the total effect would help future generations to be able to find a house close to their relatives at an affordable price.
How do I plan for the Future?
As a local buyer it could mean that more houses will become available. The future housing market could go a number of ways. It may take a while before prices drop, prices may not decline or decline as much as we think.
As a foreign buyer it could mean delaying arrival to Canada to ensure financial security. It also means that buying a home as an investment means less of a return. This may or may not discourage investors due to the returns they get from developing. If you consider the population growth of BC it may still be worthwhile to buy homes as an investment.
For future developments on this policy visit the BC Housing Affordability page.