Thank you for writing to me about the speculation tax and housing issues. I’m writing to you from Victoria, where your new government has just tabled our first full budget. Relevant to your concerns, addressing rampant housing speculation and absentee ownership of properties was a key priority of government outlined in this year’s budget.
The measures announced in the budget to address our housing crisis are many, but most importantly to those concerned about rampant speculation in our housing market, the budget includes a new annual surtax for those who own property in British Columbia, but who are not tax resident in our province. This proposed surtax will add $20,000 in annual tax for each $1m in housing assessed value for those targeted by the tax. It is a significant additional tax burden, but a fair request of those who benefit from public services in BC. The proceeds of this tax will be invested into building housing that is actually affordable for families across the province, including in Vancouver.
This proposed tax mechanism is just one of many that have been suggested by thoughtful people about how to address our neighbourhoods being used as a “safe deposit box” for global capital seeking stability in a chaotic global investment market.
Everything from a ban on “foreigners” being able to buy property as in New Zealand and Australia, to provincial “empty homes” taxes as in Paris and the city of Vancouver, to speculation taxes based on “flipping” properties in a certain period of time, have been proposed.
Each proposal is interesting, but each also brings unintended problems or enforcement challenges. The model which government has chosen to proceed with is certainly complex in implementation, but once in place, will provide us with an effective and flexible tool to price the impact of absentee speculation on our neighbourhoods into the cost of buying real estate in overheated markets like Metro Vancouver.
This model of taxation is based on a proposal by Tom Davidoff, a professor at UBC’s Sauder School of Business. It proposes rewarding those who live, work (or worked) and pay taxes in our province by exempting them from this surtax which will be paid only by those who own property, but don’t pay income tax in BC.
Serious and important implementation questions about how to avoid taxing those who provide rental housing, business owners with income that may vary significantly year to year, those recently unemployed, or those who may be retired with high home valuations and low taxable incomes after a lifetime of paying taxes in BC, will be addressed.
The target of the new tax is clear: those who speculate in our housing market without contributing to what makes our communities a wonderful place to live, and refinements will occur as the tax goes on to ensure that unintended individuals and families are not impacted.
Another major initiative that has gotten little attention, but may ultimately be more significant than the speculator’s surtax will be a new “beneficial ownership” registry of property ownership in the province. This registry will require the disclosure of the actual owner of properties in British Columbia. In other words, the public will be able to determine, through the land registry, the real person or people who benefit from owning any particular property.
The reasons to conceal an actual human owner are many, and some apparent attempts to “conceal” an actual owner may actually be a side effect of a business or personal purpose that is entirely legitimate. However, concealing a true owner, and a system like British Columbia’s current system that permits the true owner to remain hidden, prevents regulatory authorities from cracking down on any number of harms, including tax evasion or money laundering.
Disturbingly, this problem is not a speculative issue in our community. According to a recent study by Transparency International Canada, almost 50% of Vancouver’s most expensive properties have ownership structures that conceal the true owner of the property.
Transparency International Canada’s research, which I supported by providing land title documents to them to facilitate their review, revealed opaque residential property ownership structures like offshore trusts, numbered companies with lawyers as sole directors of the company, and “students” and “housewives” as purchasers of properties valued in the tens of millions of dollars.
The research showed that more recent real estate transactions were far more likely to use opaque structures than older transactions. In other words, they observed that the problem was getting significantly worse, not better.
Recent articles by Sam Cooper in the Vancouver Sun, and Kathy Tomlinson in the Globe and Mail, have outlined damning allegations connecting the laundering of hundreds of millions of dollars in proceeds of crime and our local real estate market.
My own briefings as a Cabinet Minister responsible for gambling in the province caused me to hire Dr. Peter German, an international expert in money laundering, to advise me on reforms to deal with what appeared to me to be out-of-control money laundering in Lower Mainland casinos. I also asked him to tell me what connections to other areas of our economy – like real estate – he identified. He will be reporting back to me by March 30th of this year.
Our beneficial ownership land registry in BC will be a leader in Canada, and will follow the successes (and build on the challenges) experienced by other jurisdictions like the UK which have also adopted similar mechanisms. By knowing the true beneficial owner, Revenue Canada, the RCMP, and other enforcement agencies can ensure our property market is not used for money laundering or tax evasion.
In addition to these changes, major reforms to the pre-sale condo housing market that will require accurate and complete information about those buying pre-sale condos, including Social Insurance Number, will enable our government to take action on speculators in this area as well. Hard working British Columbians looking for a family home should not be disadvantaged by speculators buying pre-sale condos and flipping them for profit – these legal reforms will assist government in cracking down on this kind of activity.
While these reforms in themselves will not solve the problems that have been growing in our housing market for years, this year’s budget announcements marked the first significant steps in a long time to begin to address this serious and corrosive problem. If you would like to read more about the 30 point housing plan our government has put forward, you can click here to read more: http://bcbudget.gov.bc.ca/2018/homesbc/2018_Homes_For_BC.pdf