On July 25, 2016, the government of British Columbia introduced Bill 28, Miscellaneous Statutes (Housing Priority Initiatives) Amendment Act, 2016 (the “Act”), seemingly in answer to the growing public outcry for government intervention into the real estate industry and foreign investment in the Vancouver-area housing market.
In addition to amendments to the Vancouver Charter enabling the City of Vancouver to impose a municipal tax on vacant residential property, and amendments to the Real Estate Services Act discontinuing self-regulation of the real estate industry, the Act introduced an additional 15% property transfer tax on residential property purchased by foreign nationals, foreign corporations and taxable trustees in the Greater Vancouver Regional District.
Prior to the introduction of the foreign buyer tax, property transfer tax was payable in British Columbia on applicable transfers by both Canadian citizens and foreigners alike at 1% tax on the first $200,000 of the fair market value of the property, 2% on the remaining value up to $2 million and 3% on any portion above that. On the purchase of a $2 million dollar home this amounts to $38,000 in tax. But once the amendments came into effect, a foreign buyer purchasing a $2 million dollar home would be required to pay an additional $300,000 in tax.
Reactions to the announcement of the foreign buyer tax were immediate. With the amendments to the Property Transfer Tax Act set to come into force on August 2, 2016 – a mere eight days after Bill 28 was announced – realtors, lawyers and notaries scrambled to help their clients avoid the additional tax by closing their purchases before the deadline. The BC Land Title and Survey Authority reported that more than 15,000 transfers were filed over the last two business days before the new tax took effect. In fact, the demand was so heavy that it crashed the Land Title Office’s electronic filing service on both days.
British Columbia is certainly not the first jurisdiction to impose additional rules on foreign real estate buyers. Across the globe, Australia, Britain and Hong Kong have all taken measures to slow down foreign ownership and alleviate housing price pressures in their respective markets. However, the introduction and implementation of the foreign buyer tax in Metro Vancouver has drawn significant criticism. A major point of contention arose from the fact that the Act did not grandfather purchase contracts entered into before August 2, 2016, leaving foreign buyers with existing contracts who were not able close before the deadline with the difficult decision of either forfeiting their deposits or coming up with the additional property transfer tax. A group of foreign buyers even launched a class action lawsuit against the provincial government.
The foreign buyer tax has also been criticized for unfairly targeting foreigners who are living and working in Vancouver and contributing to the local economy. In response, on January 29, 2017, Premier Christy Clark announced that the province would exclude foreigners with valid work permits from having to pay the tax, but did not elaborate on the proposed changes.
While there is no denying that the introduction of the foreign buyer tax has contributed to the recent slowdown of sales activity in the Vancouver area, it remains to be seen what the long-term effects of the tax will be. For now, the Vancouver legal community, together with buyers, sellers, developers and real estate professionals are still watching and waiting to see how the full story of the foreign buyer tax will ultimately unfold.
On March 17th, 2017, the Government of British Columbia announced new exemptions to the foreign buyer tax for foreign national individuals who receive confirmation under the BC Provincial Nominee Program, as well as refunds for individuals who were confirmed as a B.C. Provincial Nominee between August 2, 2016 and March 17, 2017, and individuals who became permanent residents or Canadian citizens within one year from the date the property transfer was registered with the Land Title Office.