There is a lot of misinformation surrounding the speculation and vacancy tax. It’s important that British Columbians understand the nature of the tax, and the stakes involved — in part because the tax is already helping to moderate housing prices and improve affordability.
First, many have depicted this as simply an empty homes tax. The tax does address vacancy, as its name suggests, however its main impact relates to satellite families and foreign owners. This point has often been missed in the media and disregarded by critics.
Satellite families are households where most of the breadwinner’s income is earned abroad, but the family lives here. In practice, this has meant that these families have typically dodged their income tax responsibilities in B.C.
Consider the government statistics on those who have arrived in Metro Vancouver through the investor immigration programs. On average, investor immigrants paid $1,400 annually in income taxes in the first 10 years after landing. Now consider the average house value of those who entered through these programs: roughly $2 million.
A local taxpayer household who bought that $2 million home would usually need to be making more than $300,000 every year. That would mean paying income taxes of about $100,000. But the satellite family can avoid that, if they arrange their finances conveniently. This is a huge incentive for wealthy people from around the world to buy real estate here. No wonder that housing prices have become decoupled from the labor market: the scale of this phenomenon is widespread, with tens of thousands of families in this situation.
The speculation tax addresses that dynamic by imposing an annual surtax of two per cent of property value on satellite families — households where more than 50 per cent of income is earned abroad — even if the property is not vacant. Doing the rough math, when the full two per cent rate applies next year, that amounts to hundreds of millions of dollars annually in potential revenue that the B.C. government will collect — all from millionaire families that are otherwise avoiding their fair share of taxes.
Far from a tax grab, this is simply making sure that our tax system is not being gamed.
Second, some have loudly complained about homeowners having to fill out a form. They contend that the declaration form is onerous and will catch lots of people improperly. This is inaccurate.
For the vast majority of homeowners, the declaration form will take less than five minutes. Homeowners in affected areas don’t need to trust me on this. They will be seeing just how easy it is shortly. But that hasn’t stopped exaggerated alarm in the media.
In addition, if a declaration is missed for someone who shouldn’t be subject to the tax, then a proper declaration the following year will lead to the exemption being granted retroactively. So homeowners would have to mess up a few years in a row to have any potential liability.
Third, there is the idea that the “government is accusing us all of being speculators,” since all homeowners need to make a declaration. This again is misleading rhetoric.
To enforce the tax, the government needs to collect basic tax information and link it in a comprehensive way with property ownership. That’s what the form is about, and that’s what will allow them to figure out who the satellite families are.
If the government just politely asked the satellite families to register, and gave a pass to everyone else, then how would they know if satellite families failed to register? It’s only by collecting data on everyone that we can be sure that we’ve identified all the satellite family situations.
That’s why we don’t have road checks with separate “drunk driver” and “everyone else” lanes – the drunk drivers would just drive in the “everyone else” lane.
So what this amounts to is that those who oppose the gathering of data are, wittingly or not, shielding tax avoiders and evaders from scrutiny. To the tune of hundreds of millions of dollars in potential revenue.
This is a peculiar stance to take, to put it mildly.
A final point: B.C. has a major money-laundering problem, partly through casinos and partly through real estate. As recent court cases have driven home, money launderers don’t tend to declare much income. So the data gathering associated with the tax will also help us detect and prosecute money laundering, by shooting up red flags around big disparities in house prices and declared income.
In sum, we have a policy measure that will crack down sharply on tax avoidance and evasion and money laundering, and thereby address a few major sources of the housing crisis.
Yet some are crying wolf about a five-minute form. It won’t surprise you that many of those loudly complaining are the same ones who never showed much concern for tax avoidance or money laundering in the first place.
Josh Gordon is an assistant professor in the School of Public Policy at Simon Fraser University.
You can complete your declaration as soon as you receive your declaration letter. You need the Letter ID and Declaration Codefrom your letter before you start.
Contact us with your questions about the speculation and vacancy tax.