Foreign buyers to face new 15% extra property tax in Canada
A new tax for foreign property buyers is being introduced in British Columbia in Canada in an attempt to cool escalating house prices.
The 15 per cent foreign buyer tax will come into effect on August 2, 2016 at a time when prices in the province’s capital city Vancouver are escalating.
Indeed, the latest global cities index from international real estate firm Knight Frank shows that prices in the city have increased by 17.3 per cent in the mainstream market and by 26.3per cent in the prime market in the year to March 2016.
Policymakers have been looking at ways to cool price inflation in recent months and the new tax will relate to residential purchases in Metro Vancouver, an area that extends from Bowen Island to Maple Ridge/Langley Township.
According to Knight Frank, in real terms the new tax will result in an extra $300,000 in property transfer tax based on a property bought for $2 million by a foreign citizen. This figure will rise to $1.5 million for a $10 million home.
The latest government data shows foreign buyers, mainly from China, purchased more than $1 billion worth of property in British Colombia between June 10, 2016 and July 14, 2016 of which around 86per cent was located in the Lower Mainland.
The foreign buyer tax will also apply to corporations that purchase residential real estate and the British Columbia Government has the power to examine the citizenship status of directors and the beneficiaries of corporate profits in deciding whether to add taxes.
According to the Finance Minister, the resulting revenue from the new tax will be spent on housing affordability projects.
However, Knight Frank points out that some loopholes exist and details as to how it will be policed remain unclear. For example, the tax itself relies on buyers self reporting their nationality and providing a social insurance number, backed up by new auditing procedures and penalties. However, as yet it is unclear whether a resident with citizenship could buy a property by proxy for a family member living abroad.
“There is no doubt that the new law will cool sales volumes and prices as foreign buyers absorb the additional cost implications. It is worth noting that the planned legislation also allows the BC cabinet to alter the foreign tax rate by between 10% and 20% at a later date and expand it to outside the Lower Mainland,” the firm explains.