Whether you’re a first-time renter or an experienced homeowner, the current B.C. government wants you to know they are here for you — at least that appears to be the underlying message of the BC Budget 2018.
The annual budget, which was announced February 20, is focused on “making life more affordable in B.C.” — no small feat, given the astronomical rise in housing prices in the last decade, coupled with recent allegations of widespread, systemic money laundering in B.C.’s real estate market.
Still, the minority NDP government announced the balanced budget with more than a few commitments aimed at keeping their campaign promises. But what does this really mean for B.C. homeowners and renters?
Those that already own property won’t see much love in this year’s provincial budget. In fact, you may need to add a few expenses to your personal budget.
For instance, starting in 2019, there will be an additional school tax on all residential properties valued at $3 million or more. This tax will apply to all property types — from detached homes to townhouses to condos and even vacant land and multi-use properties (although the tax will only apply to the residential portion of these properties).
The idea is that those homeowners who have benefitted most from the rapidly accelerating property values should be required to give back to their communities.
The new school tax rate will be 0.2% on residential properties valued between $3 million and $4 million and 0.4% on any residential property with a fair market value over $4 million.
“Rising housing prices have benefited many people,” states the Ministry of Finance in the tax and budget release, yesterday. “Those who have benefited the most from the rising real estate market should contribute their fair share.”
It may not stop here, either. Despite a few campaign promises to offer rental rebates, the 2018 BC Budget did not deliver on this pledge. Instead, the B.C. NDP government said it would review the grant it gives to homeowners “to improve fairness.” The grant was originally introduced to provide financial relief to B.C. homeowners who were faced with large property tax bills after watching the value of their homes escalate over the last decade. This could mean the elimination or modification of this grant in years to come.
Buying a property over $3 million
While the definition of luxury real estate varies from market to market, it’s common to consider any property valued at over $3 million as a luxury property. Turns out this is significant for the B.C. NDPs. As of February 21, 2018, the B.C. NDP government wants more property transfer tax paid on properties valued at $3 million or more.
Right now, property-transfer tax (commonly referred to as the BC Land Transfer Tax) is charged whenever changes are made to a property’s title. The current rate is:
- 1% on the first $200,000
- 2% on the portion of the fair market value between $200,000 and $2 million, and
- 3% on the portion of the fair market value greater than $2 million.
With this new budget:
- new owners will have to 5% on the portion of the fair market value greater than $3 million.
This is an increase from the 3% that was originally in place.
It appears that this new government really wants those who can afford to purchase a property at these higher price points to pay more into the provincial coffers, which, theoretically, could help the province to manage and create more affordable housing opportunities.
Buying B.C. real estate as a foreign buyer
Any non-resident Canadian (that doesn’t qualify for exemption under the foreign buyer’s tax) is going to need to fork out even more money after this latest budget.
Now, any transfer of ownership or purchase made by a foreign buyer (including corporations and trusts) will be subject to a 20% surtax — a 5% increase to the 15% tax that was originally introduced in August 2016.
Under the old foreign buyer’s tax, any non-Canadian buyer who bought, for example, a detached home in North Vancouver valued at $3 million would have to pay $450,000 in tax. Under the enhanced foreign buyer’s tax, that same purchase would trigger a $600,000 taxable fee, paid to the B.C. government.
What really gives the enhanced foreign buyer’s tax teeth is that the B.C. NDP government extended the geographical coverage of the tax. When it was initially introduced, the tax only applied to property purchased in Metro Vancouver. Now, with this latest budget, the tax will apply to any property located in the Greater Vancouver Regional District, which includes large segments of Vancouver Island, the small islands around the Lower Mainland, the City of Vancouver and the North Shore, Burnaby all the way out to Hope in the interior of the province, as well as large sections covering the Okanagan and Kelowna areas.
This is big news. Essentially the BC NDP government is making it clear: If you want to own a piece of B.C., you’ll have to contribute to the province’s economy. Most Canadians and permanent residences do so on an ongoing basis through the payment of property and income taxes, but foreign buyers are excluded from these annual costs. Now, with this enhanced foreign buyer’s tax, non-Canadians will need to fork out more upfront.
This enhanced surtax applies to purchases made on or after February 21, 2018. Foreign buyers who buy B.C. property outside of the Greater Vancouver Area could qualify for an exemption on the additional tax but only if ownership takes place on or before May 18, 2018 and the purchase was finalized and documented before February 20, 2018.
Don’t pay income tax? You’ll pay more for your B.C. property
As part of this year’s budget, there will be a new, annual property tax for any foreign and domestic homeowners that do not pay income tax in B.C.
All non-income-tax paying homeowners will have to pay 0.5% of the assessed value of a home, but in 2019 this will increase to 2% of the assessed value.
At first, this new tax will only apply to properties in Metro Vancouver, the Fraser Valley and in the Greater Victoria, Nanaimo and Kelowna areas (known as Capital Regional Districts) but this geographic region could widen, depending on how the market reacts.
The idea is to either force out-of-province speculators and foreign buyers out of the market — by making the ongoing cost of owning in B.C. too expensive — or to force these property owners to contribute annually to the province’s economy.
“This tax will penalize people who have been parking their money in our housing market simply to speculate, driving up prices and removing rental stock,” explained B.C. Finance Minister Carole James after the budget release yesterday. “People have been clearly hurt by this housing crisis. This is a major important step to end speculation in our market.”
Why this could help first-time buyers
While this tax isn’t aimed at helping first-time buyers, it may actually help this struggling property-purchasing demographic.
Given that the B.C. NDP government opted to introduce this speculators tax in two phases — charging just 0.5% on the property’s fair market value this year, but jumping to 2% in 2019 — this increase in annual costs could prompt a few out-of-province property owners to consider selling.
If, for example, an American couple owned a vacation condo in Whistler, B.C. valued at $400,000 (all prices in Canadian dollars). Starting this year, this couple (who do not pay provincial income tax) would have to pay the B.C. government $2,000 in tax (0.5% of $400,000). In 2019, this cost would jump to $8,000 per year (2% of $400,000). As property values increase, so will this annual cost.
Eventually, this cost will prompt owners to leave the market. Anytime you remove a segment of competition from the marketplace, this helps ease demand and, eventually, helps with overall affordability, and this helps first-time buyers.
Still, given the relatively small size of this speculators tax, it’s doubtful that non-B.C. income tax paying property owners flood the market with their properties in 2018 or 2019 in order to avoid this tax. As a result, there is little chance of a market crash, but the possibility of increased inventory. Those that do choose to hold on to their property will be forced to contribute to the provincial economy. Sounds like a win-win for those who choose to live and work in B.C.
More in the BC Budget 2018
While renters and first-time home buyers didn’t get any direct love from the B.C. NDP’s — no $400 rental rebate, as initially promised, and no additional tax breaks — there were a few measures that could end up helping with personal budgets.
For renters, there was nothing concrete however, the B.C. government did pledge to change the laws that apply in cases of renoviction and demovictions — where tenants are left without housing or support once a landlord legally evicts them due to major rental unit upgrades or tear downs. For landlords, this means tougher laws around the misuse of provisions that enable them to evict due to repairs or upgrades to existing rental units.
In this budget, the B.C. government committed $1.6 billion for affordable housing to those struggling to make ends meet. This includes about $565 million for new student housing units and homes for the almost-homeless and those fleeing from domestic violence. Part of this commitment was to help increase financial assistance to seniors and low-income working parents who rent their homes. The full breakdown of this financial commitment includes:
- $445 million in operating funds for affordable rentals
- $308 million for maintenance, seismic and energy performance
- $306 million for new housing for women, children and homeless
- $259 million for new student housing beds
- $155 million for operating funds for Indigenous housing
- $116 million for rental assistance programs
- $32 million for other affordable housing supports.
These commitments were part of a broader 10-year 30-point plan aimed at creating 114,000 affordable homes in the province. As well a crackdown on fraud and tax evasion in the housing market.