SUMMARY OF THE NEW NON-RESIDENT 15% PROPERTY TRANSFER TAX
1. A foreign national is one who is not a Canadian citizen or permanent resident. If it is company that is purchasing, a foreign company is one that is not incorporated in Canada, or incorporated in Canada but controlled in whole or in part by a foreign national or other foreign corporation;
2. The increased tax only applies to properties in the Greater Vancouver Regional District, and does not apply elsewhere in the Province, or the Tsawwassen First Nations Lands;
3. The tax only applies to residential properties, not commercial;
4. This is in addition to the regular PTT to be paid, and is paid on closing;
5. The increased tax is effective August 2, 2016, regardless of when the contract is signed. Even if the contract was signed weeks ago, if it completes after August 2, 2016 there is a higher tax;
6. The additional tax is payable even if there would normally be an exemption available. Transfers between related individuals, transmission to surviving joint tenant and other such items now attract the additional tax.
The Greater Vancouver Regional District includes Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley City and Township, Lion’s Bay, Maple Ridge, New Westminster, North Vancouver City and District, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, White Rock and Electoral Area A.
The additional tax does not apply to properties located on Tsawwassen First Nation lands.
From an Agent’s Perspective
This announcement of the new 15% tax changes to non-resident buyers came out of nowhere and we have had to adjust our contracts to protect our clients accordingly.
We personally had 3 showing cancellations immediately after the Christy Clark’s announcement on Monday because the buyers were all non-resident.
As well, the announcement has put some uncertainty into the marketplace. It is common thread that the majority of buyers are becoming very cautious and observant of how the market reacts to this announcement.
Don’t get me wrong, I actually agree that there needs to be changes on how we can keep housing affordable for residence of Canada.
However, I completely disagree in the way the Government has proceeded with the 15% tax to non-residence without consultation from industry professionals. It’s not necessarily the action that I disagree with but the consequences that I believe were not thought through before enacting this legislation.
The most common problem that I see will actually affect Sellers more than Buyers. The reason is that if a contract of purchase and sale is unconditional and the Seller has committed to purchasing another home, there is incredible risk to the local Seller. If the non-resident Buyer forfeits on a 5% deposit to save 10% on a future tax and the Seller requires those closing funds to complete on a second property, this will cause a lot of hardship for the Seller. In fact, the Seller who has entered into an unconditional contract on a second property could be sued for Specific Performance if they are unable to close. They would forfeit their deposit and could be sued for damages meaning if the market drops by $100,000 less than what their originally agreed upon price, the resident who is purchasing the second home could be sued by the second Seller.
As for property values, it will be difficult to say what the true effect will be until we reach our Fall market or Mid-September. The new tax implementation occurred in a historically slow summer selling season so the activity of sales and listings going into August will naturally be low. The true story of the effect of the new taxes will show itself around the Chinese National Day holiday in October. If the market is slow then, a correction will soon follow.
New Opportunities in BC
My prediction is that Victoria real estate prices are about to take off even more so now. Victoria offers great schools, low crime, beautiful coastal setting, fresh food, and low pollution. They are also exempt from the 15% transfer tax along with prices being considerably lower than Vancouver. If you are looking to invest in both residential and commercial real estate, that would be a very low-risk and a good opportunity to get into that market now. We could definitely see non-resident buyers, especially from Mainland China, flock to the island to avoid the 15% tax. So agents on the Island, brush up on your Feng Shui and Google WOK Kitchens because you will need to know all about Chinese culture in order to sell real estate to that market.