In its ongoing attempt to rein in the runaway price increases in Vancouver’s hot real estate market, the BC government has introduced legislation that taxes foreign nationals an extra 15 per cent when buying real estate there. The legislation became effective on August 2.
It should be said that this is a punitive tax. Its intent is to create a strong disincentive for foreign buyers from buying and selling real estate in Vancouver. There are various studies on the average home sale price of a Vancouver home, but for the sake of ease, let’s create a scenario where the price is $1.0 million, which is under most estimates of Vancouver home price averages. The newly introduced tax means a payment of $150,000 for that foreign national.
This tax was intended to capture foreign nationals who are not productively entering the country, such as overseas investors. It has, however, caught in its net productive expatriates who wish to buy. Human Resources need to be aware that this tax will act as a disincentive to those that are relocated permanently to Vancouver, some of whom wish to buy rather than rent. Even with high home prices, those who are relocated to Canada with the intention of being permanently localised at some point are often attracted to purchasing a home rather than renting. This may happen in their first year in the country, or their second or third. As long as they are on a work permit and not a permanent resident, then they will have to pay the tax. And given how long a road it is now to permanent residency, localized expatriates will have a barrier to purchase in British Columbia. So, there are two important lessons: i) make sure that those thinking of buying know about the tax, before they set out to purchase; ii) this tax, when known, may act as a disincentive for permanent relocations to Vancouver.
Will the tax be introduced in Ontario?
It is reasonable to speculate that Ontario could follow BC’s lead and introduce a similar tax. Why? Foreign investors in real estate, who were previously attracted to the Vancouver market, may turn their attention to Toronto, which already has its own runaway real estate pricing problem.