#also this is a PSA that vancouver is also a city in washington state and not the one in canada 🤣

[whollyjoly]

If you've voted early, especially by mail, PLEASE make sure that your ballot has been received and counted!! Vote.org has a link to ballot trackers for every state - it should take only a few minutes to confirm your vote.

And, most importantly, don't let these scare tactics stop you from voting!! This is exactly what Trump supporters want - to spread fear, and ultimately reduce the number of people exercising their right to vote. He said it himself - if everyone could vote, Republicans would never win again.

Please, go vote. Vote early! Check your ballot! Volunteer to get a poll worker if you can! They can only win through our apathy, because we are stronger than their fear.

[proper-liberal]

Optimal Housing Tax Policies: Part 1

For years, I have been thinking about how housing tax policies by the multiple levels of government affect house prices across Canada, but specifically on the City of Vancouver (CoV), Metro Vancouver (MVan) and the Province of British Columbia (BC). 

In Part 1, I plan to list out all of the various housing policies that I can think of that are relevant for the housing market in these jurisdictions with an explainer on what the policies are for. Some of the housing policies will be applicable to Toronto (TO), the Greater Toronto Area (GTA) and the Province of Ontario (ON). Part 2 will be about my recommendations for each policy! But to make sense of it, you should read Part 1 first. 

Let’s begin with the easy stuff that seems totally normal because we’ve all grown up with these laws and think they have always been there (but the reality is they were all enacted with some intended purpose, which of course has been long forgotten and is no longer relevant). I will source, what I think are decent, definitions from the interweb (mostly wikipedia!) where necessary with my own modifications.

First up:

1) Property Tax - “A property tax is an ad valorem [based on value] tax on the value of a property, usually levied on real estate. The tax is levied by the governing authority of the jurisdiction in which the property is located.” 

Pretty self-explanatory. Everyone who uses property (aka every human, except the homeless) pays directly or indirectly (renters for example) property tax to the municipal and provincial governments. Property tax rates are broken down into sub-categories that are used for funding specific services. For example, in the City of Vancouver, there “mill rate” (aka the property tax rate per $1,000 of “assessed value”) is made up of the following sub-categories: General Purpose Levy, Provincial School levy, Translink Levy (MVan’s mass transit system), BC Assessment levy, Metro Vancouver levy and Municipal Financing Authority levy. These six levies total up to a mill rate of $2.55489 per $1,000 of assessed value. That means, if you have a $1,000,000 home in the CoV, the property tax will be $2,554.89. (http://vancouver.ca/home-property-development/residential.aspx). 

It’s important to note that different cities and provinces and states fund different services from property taxes, which makes it harder to compare mill rates across different regions. For example, Seattle’s mill rate is about $10.10 per $1,000 in assessed value, or nearly 4x that of the CoV. But Washington State likely has lower State Income Tax than BC does, making them less comparable.

All real property types pay property taxes. However, since owners of, say, office towers don’t vote in local elections, the burden of taxation is heavily weighed upon commercial users of property and away from residential users, who happen to care a lot more about how much they pay in property taxes and will vote in their own self-interest. But too high of property taxes on commercial property, such as retail, office and industrial, can and does lead to higher vacancy rates as businesses close down and find lower cost jurisdictions to establish in. The landlords are still liable for property tax even if they have no tenants to derive income from to pay the tax. 

2) Goods and Services Tax (GST) that are levied on newly completed or significantly refurbished housing units.

Many people find out the hard way that when they buy a residential housing unit, whether a condo or a new house, the Federal government of Canada (GoC) levies a 5% tax on the contracted purchase price between the developer and the buyer. This can often leave the myopic people in a bind as completion approaches if they haven’t saved enough to pay the 5% levy. 

It’s important to note that “substantially refurbished” units technically are liable for GST levies, but there is ambiguity on what the definition of “substantially refurbished” is. The Canada Revenue Agency (CRA) probably prefers to keep it vaguely worded so they can apply the tax at their discretion. 

In BC, there is a 36% GST rebate (36% * 5% = 1.8% off, so a total of 3.2% of purchase price) on housing units below $350,000. The scale slides from 36% to 0% rebate on properties above $450,000. Anything above $450,000 is levied the full 5%. 

In Ontario, the GST was replaced with the Harmonized Sales Tax (HST) and has its own system with rebates that I’m not aware of. 

3) Property Transfer Tax (PTT)

As the name suggests, the PTT is a tax on the value of the property when the title is transferred from the seller to the buyer. The buyer is liable for the PTT. In other jurisdictions, they call it Land Transfer Tax (ON), or Stamp Duty (UK, HK, Singapore, Australia). 

In BC, the PTT is a progressive tax that is based on the contract price of the Purchase and Sale Agreement (PSA) between the buyer and seller. First Time Buyers (FTB) who buy housing units below $475,000 are exempt from PTT with a sliding scale to $500,000, above which the full PTT is charged. Newly built homes below $750,000 don’t have PTT because the buyer has to pay GST. There are some other exemptions for newly built homes (https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/exemptions/newly-built-home-exemption)

The PTT is calculated with these thresholds:

1% on the portion of the price under $200,000

2% on the portion of the price between $200,000 and $2,000,000

3% on the portion of the price between $2,000,000 and $3,000,000

5% on the portion of the price over $3,000,000

For example, a $799,000 condo would be $13,980 ($2,000 + $599,000 * 2%)

Here’s a calculator: https://www.bcrealestatelawyers.com/ptt-calculator/

The recent BC NDP budget added the 5% band on above $3,000,000 housing units. 

4) Development Cost Charges (DCC) and Community Amenity Contributions (CAC)

These two types of charges are specifically for new developments in MVan municipalities. DCCs are governed by the Metro Vancouver Regional District, the entity that organizes the drainage and sewerage system across the region. The DCCs go towards covering the cost of integrating newly developed housing units into the drainage and sewer systems. DCCs are a fixed cost per unit, which are higher for homes than apartments. Also, the Fraser Valley has much higher DCCs than the Vancouver ones, probably because the density north of the river allows for economy of scale, and the system south of the river requires massive investment. The DCCs will be increasing effective May 1, 2018. http://www.metrovancouver.org/services/liquid-waste/consultations/development-cost-charge-program/Pages/default.aspx

Community Amenity Contributions, on the other hand, are “in-kind or cash contributions provided by property developers when City Council grants development rights through rezoning,” as per the City of Vancouver’s website. The CACs go towards: parks, libraries, childcare facilities, community centres, transportation services, cultural facilities, and neighbourhood houses (social housing). CACs are different in various parts of the city and municipalities, meaning some parts of the city have higher costs to develop than other, holding everything else equal. For example, if a developer wants to rezone for a 6-storey building in the Cambie Corridor, they would have to pay to the CoV $68 psf of “net additional” square feet. This cost gets directly passed onto the future consumer of the properties being developed.

Here is the link: http://vancouver.ca/home-property-development/community-amenity-contributions.aspx

5) Home Ownership Grant (HOG) and Property Tax Deferral Program

The Home Ownership Grant provides a subsidy of $570 off of each property tax bill for people who live in their principal residence. There is an extra $275 grant for seniors (over 65) and other grants for disabled people. To qualify for the HOG, you must be a Canadian citizen, be the registered owner of the home. 

As properties in BC have risen in value over the years, the government of the day continues to raise the threshold on which the housing units no longer qualify for the HOG. For example, in 2015, the threshold was $1.2m, meaning people with their principal residences below the threshold qualified for the HOG. But in 2016, there was an outcry because house prices in MVan rose so much that the threshold was raised by 33% to $1.6m. Yes, in Metro Vancouver, millionaires, whose wealth rose in the year by up to hundreds of thousands of dollars, cried to the government that it was unfair that they should have to pay $570 in property tax. Of course, the renters, lacking in political power and knowledge of what’s happening with the HOG, receive zero benefit but do have to shoulder some of the increased property tax cost, as owners of rental units don’t receive the HOG and thus just recover it from renters through raising rent when possible. Here’s the link: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/annual-property-tax/reduce/home-owner-grant/regular

The Property Tax Deferral Program is an old program that was set up in a by-gone era when more than 20% of seniors lived in poverty (today it’s like 6%-8% in BC - and even lower for homeowners). The political compromise was that people over the age of 55 were eligible to defer the property taxes due each year at an interest rate set each year (currently 1.2% plus $60 fee for first year, $10 per annum thereafter). Effectively, the deferral program can be renewed each year until the housing unit is sold or is no longer the principal residence. Taxpayers of BC are protected because a restrictive lien is placed on the title of the land, meaning the housing unit can’t be sold until the debt is paid. Here is the link: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/annual-property-tax/defer-taxes/regular-program

6) Foreign Buyers Tax (FBT)

The FBT was brought in abruptly on July 25, 2016, and effective one week later by the BC Liberal government. It applied a 15% (now 20%) ad valorem tax for foreign national, foreign corporation or taxable trustee if the property being acquired was in Metro Vancouver. The BC NDP government expanded the areas to the Capital Regional District (Victoria), Nanaimo Regional District, Fraser Valley Regional District and the Regional District of Central Okanagan. 

It is a tax on top of the PTT (mentioned above) and GST (mentioned above) for new builds. So, a foreign national buying a new build condo in Downtown Vancouver would have to pay 20% + 5% + 2% = 27% of tax on top of the contract price. This compares to 5% for British Columbians, 7% for British Columbians buying a place valued above $750,000, and 7% for numbered BC companies (holdcos) owned by British Columbians. There are some exemptions for the FBT. Here’s the link: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax

7) City of Vancouver’s Empty Home Tax (EHT)

The City of Vancouver has had an extremely low vacancy rate for many years now, which is a significant contributor to the “Housing Crisis” in the region. The EHT was brought in by City Council in 2016 and is to be paid for the first time in 2018. The idea of this tax is to discourage people who own second homes in the City of Vancouver from holding them empty for more than 6 months of the year, and to encourage them to put their units up for rent. The tax rate is 1% of assessed value. 

The City required every housing unit owner (principal and rentals) to “declare” if the housing unit is their principal residence, or if it is leased to a tenant. The deadline was early February 2018, but was extended to March for people who didn’t realize the deadline was approaching. The administration costs to set up the EHT was $7.5m, and it is estimated that it will cost $2.5m annually to continue the tax. The amount levied in the first year is between $17m and $30m from 1,200 to 2,300 (depending on the result of disputing the tax). The highest amount levied was $250,000 on an empty home. Here’s the link: http://vancouver.ca/home-property-development/empty-homes-tax.aspx

In this post, I’m concentrating on tax policies that affect the housing market while purposely leaving out the controversial so-called “Speculation Tax” because I wrote a whole blog post on it previously. And in Part 2, I will address each of these policies listed above. Nevertheless, the recent BC NDP budget provided a long list of non-tax policies that could and probably should be addressed in another blog post. Here’s the link to the “Homes of BC” document from the Budget: http://bcbudget.gov.bc.ca/2018/homesbc/2018_Homes_For_BC.pdf

Cheers for now.