The media is ignoring the key takeaway in the 15% foreign tax debate, according to one broker who argues the move sends a bad message to the rest of the world about how Canada does business.
The fact that existing transactions by foreigners -- who may have purchased pre-build properties years ago -- will be subject to the 15% tax sets a dangerous precedent, according to Dustan Woodhouse
, a B.C.-based broker with Dominion Lending Centres
“Our government has put forth something that for existing transactions is wholly unfair. It’s just wrong. If any reader of this story was directly impacted themselves, they would be up in arms,” Woodhouse said. “And they should be up in arms anyway because the ramifications of this on a larger scale are significant. What are we saying to the world about how we do business? How is this not being challenged in courts?”
The 15% sales tax for all properties purchased by individuals who are neither citizens nor permanent residents, which goes into effect August 2nd
, will also apply to deals that had already been struck – but have yet to close – prior to that date. That includes pre-build transactions.
“If you wrote your offer on a pre-sale in 2013 that is nearing completion and your completion date is after August 2nd
, you’re going to have to come up with that tax,” Woodhouse said. “On a deal you negotiated three years ago, or three days ago, if you can’t come up with the tax to complete it by this deadline … you’re going to lose your deposit.”
Most media coverage of the tax has focused on the impact it will have on Vancouver’s real estate prices. It also mostly assumes it’s the wealthy Chinese buyers who will be impacted.
However, according to Woodhouse, the effects will be felt by any foreigner, even the working class, who are trying to start a life in Vancouver. He provides an example of just such a person in his own blog.
“Just like one student we know of whose parents were assisting her on the purchase of a $400,000 condo to live in during her remaining six years of studies. Contract entered into three months ago, completing in about four months,” Woodhouse writes. “Boom! $60,000.00 extra please, in addition to the $140,000.00 minimum down payment required, or else forfeit your $80,000 deposit to the developer.
“If she completes, the government wins. ($60,000 in new tax revenue). If she cannot raise the extra $60K, the developer wins. ($80,000 deposit forfeited).”
Cases like this raise questions about the government’s policy. And, perhaps, if there could be a better way to structure the tax.
“Why wasn’t there a dollar threshold? Why wasn’t it a scaled tax? If you want to hit the wealthy, hit the wealthy,” Woodhouse said. “But to hit the little guy, our future Canadians …
“Does this set a dangerous precedent in the minds of foreign investors across Canada? If I’m an international buyer, I’m out. I’m going to take a few steps back until I figure out what [Canada is] doing.”