Vancouver realtors brace for chaos as foreign tax kicks in
The new tax on purchases of residential property in Metro Vancouver by foreigners that takes effect Tuesday is expected to cause further disruption to Canada’s most expensive housing market.
Vancouver realtors spent the past week and much of the holiday weekend scrambling to close deals to beat the 15 per cent tax — at one time bringing British Columbia’s land registration system to a near halt, forcing people to close deals by hand.
Dan Morrison, president of the Real Estate Board of Greater Vancouver, which decried the lack of notice given to the industry about the new tax, said the sudden shift in policy announced July 25 pushed many deals forward to Friday.
“At this point in time, there is not much we can do,” said Morrison, about trying to close more deals before Tuesday. Provincial officials say the Land Title and Survey Authority Internet portal was open on the weekend, but reported traffic was down.
Still unclear is what will happen with deals negotiated before Tuesday but that close afterwards and are subject to the new tax. That charge is in addition to the property tax transfer rate of one per cent on the first $200,000, two per cent on the portion greater than $200,000 up to and including $2 million, and three per cent on the portion of the fair market value greater than $2 million.
Some industry observers expect deals to fall apart as foreign buyers simply walk away from deposits that in many cases will be lower than the tax they will now face to close a deal.
“I’m not arguing with the provincial government about the merit of a 15 per cent tax, that’s a different conversation,” said Morrison. “Our No. 1 concern is they did not grandfather existing contracts.
“Some were written two years ago and some might have been two weeks ago. People made good faith decisions and the government changed the rules. A one per cent increase, people might have tolerated. But a 15 per cent increase has given foreign buyers an incentive to walk away. Sometimes (the tax) is two or three times the deposit.”
Tony Spagnuolo, a Vancouver real estate lawyer, said he expects a domino effect in which people waiting to close on a house they are selling will come up short of cash when it’s time to buy because their first deal falls apart.
The tax could also be challenged in court. Barry Appleton, a managing partner at Appleton and Associates International Lawyers in Toronto and the author of two treatises on the North American Free Trade Agreement, said the tax violates NAFTA, and Americans will be able to sue the federal government. He said the tax would also be in violation of the CanadaChina Bilateral Investment Treaty.
A spokeswoman for B.C.’s Ministry of Finance said the constitution provides that provinces may impose taxes to raise revenue for provincial purposes.