July 25, 2016

Well, well, look what just happened

Tax
Anyone care to speculate how this came about – and some of the consequences?

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  1. 1. An election will soon be upon us.
    2. The Liberals just won themselves re-election. Otherwise there will be no consequences whatsoever.

  2. Bravo !
    Foreign buyers of Metro Vancouver real estate will be taxed an additional 15 per cent, including corporations with non-resident beneficiaries. This is a major step in the right direction.
    Missing is a link to CRA to enforce taxes are paid on sale as there are many straw buyers in MetroVan. Related article as CRA is startign to crack down: http://business.financialpost.com/personal-finance/taxes/how-the-cra-cracks-down-on-non-compliance-in-hot-housing-markets
    Money will now move to Okanagon, Sunshine Coast, Fraser Valley and Vancouver Island. Locals there will scream as their prices rise fast as money shifts first to Victoria (which it has already but now this will accelerate), then to Whistler and Kelowna, then to Abbotsford and other places in Okanagon, Sunshine Coast, Fraser Valley and Vancouver Island.
    Unclear why only MetroVan ?
    House prices in MetroVan will moderate somewhat as they have in Sydney or London.
    Local buyers get a 15% advantage. A MAJOR advantage !
    That extra tax will be used for some more supply. Good news too.
    This is a major step in the right direction.

  3. Could be bad news for buyers every where else in the province. But I’m not convinced this will change anything as intilligent buyers will find a way to get there money into the market. Foreign money is attracted to Vancouver, it will be interesting to see if the secondary / tertiary markets of BC have the same gravity or if the money will move to other major global cities.

    1. It is a great way to monetize our brand.
      It will also be heavily abused by straw buyers. That is why enforcement and easy tracking is relevant ie link SIN number to real estate purchase.

  4. I don’t think it will matter, the investors will just get a local to buy the property on their behalf, similar to that 20 million dollar property on point grey road that was bought by a UBC student who managed to get a job that was only supposed to be for ‘impoverished’ students

      1. Can they ? How ? Legally ? Of course there will be many folks trying to game the system. But legally it is tough.

        1. Set up a corporation, get a relative or a friend, or just lie about who owns the property. Yes the CRA is getting 50 investigators but that is almost nothing for the scale of the problem.

        2. Well the friend takes huge risk as he is on the hook on asset sale for taxes and possibly for a mortgage.
          What is a LEGAL way to circumvent it ?
          I can think of two right off the bat, there may be more.
          a) corporation is set up that is owned by local A. Investor B lends money to the corporation at say 30% interest. Corporation buys asset. Legal. Local owner. No beneficial interest by B. Property is sold eventually but the profit is not high enough to pay all interest and the loan. Loan and all interest is paid back to B. A takes a small fee for arranging it, maybe even a share of profit.
          b) Local A buys property and gets a mortgage, say 65% loan-to-value. 35% is lent by individual foreigner B. B’s loan is eventually secured as a second mortgage, say 20-40% annual interest. Again, like in the first example, no beneficial ownership of B as A owns it. Like in the first example, property is sold eventually but the profit is not high enough to pay all interest and the loan. Loan and all interest is paid back to B. A takes a small fee for arranging it.
          Are there other ways ? You can bet some clever lawyers are working on it !

        3. 1) Canadian citizen or resident could incorporate a company in Canada to buy a Vancouver-area house, and then when they want to sell it to a foreigner, they merely sell the shares of the corporation. Title to the home never changes hands, so it doesn’t necessarily become subject to the new transfer tax.
          2)”As a Canadian or permanent resident, I could set up a company and fully capitalize it with foreign money and there’s nothing stopping me from buying up as many properties as I wish without paying any of this tax,” Eby said in an interview.
          3)the new tax doesn’t apply to pre-sale condos and homes, Eby said, which means foreign speculators can still snatch up properties under development and then flip them later, as long as it’s done before construction is completed and the new homes are inscribed on the provincial property registry.

      1. Yes many ways to game the system. However in May they already required all buyers to declare nationality of owner(s). If you own shares, and sell the asset, it will trigger a tax event, and/or withholding taxes if money is dividended out.
        But CRA is starting to crack down too, and will get more staffing: http://business.financialpost.com/personal-finance/taxes/how-the-cra-cracks-down-on-non-compliance-in-hot-housing-markets
        Unintended consequences: SFH prices outside of Metrovan will soar in 2016 into 2017, likely 20%+: Victoria (already started, will accelerate), Kelowna, Whistler, Sunshine Coast, Okanagon ..

  5. Only one other observation and that is the motivation for the majority of “foreign investors” isn’t profit, but safe harbour. The deterrent effect will probably be nil. Probably.

    1. Whenever you raise prices people will look at alternatives, be it shoes, cars, food or houses. Alternatives exist in BC (say Victoria, already up .. or Sunshine Coast or Whistler or Kelowna or V Island or Abbotsford ..) or in Toronto or other parts of the world. It will have an impact. The only question is : how much.
      I’d predict: quite a bit. Loads of whining by realtors and the real estate industry about cancelled condo projects.
      Better would have been a somewhat lower surcharge on condos and a BC wide policy, not just MetroVan.

    2. Spartikus is correct.
      With the exception of firm deals which haven’t yet closed (which really should not be affected by the new tax), Chinese investors (oops… should I have said “foreign” investors?) won’t be affected. The purchase price will be lowered to take into account the tax. The tax revenue won’t come out of the pocket of the purchasers; it will come out of the pocket of the vendors.
      FWIW, I agree with other comments that the new tax can be circumvented with little effort, but I don’t think the purchasers will bother.

  6. A corresponding 15% tax decrease for the (few) remaining local buyers would be an even greater election ploy.

  7. It would be nice if they raised the limit on the property transfer tax exemption for locals and provided a greater home owners property tax grant for people living in Metro Van. Only recently discovered that people in other parts of the province get a larger home owners grant than we do in Metro Van. I wonder why that is.

  8. The Property Transfer Tax (for locals) is as much as some here seem to think it is.
    i.e. you can’t have a 15% reduction on a tax that maxes out at 3%.

    The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit. The tax is charged at a rate of:
    1% on the first $200,000,
    2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
    3% on the portion of the fair market value greater than $2,000,000.

    For example, if the fair market value of a property is $450,000, the tax paid is $7,000.
    If you’re a foreign national or foreign corporation and the residential property is located in the Greater Vancouver Regional District, you also pay the 15% additional property transfer tax on the fair market value of your proportionate share.

    http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand

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