Whittled down spec tax no longer worth it, says advisor

by Neil Sharma22 Oct 2018

British Columbia’s speculation and vacancy tax has become so whittled down that an advisor on the original proposal believes it no longer serves a purpose.

“The original proposal called for municipalities to decide if they wanted to enact it or not, but there was no obligation,” said Andrey Pavlov, a Simon Fraser University professor of finance. “The taxes were supposed to be spent locally, in the same municipality and even in the same neighbourhood. The original proposal was also supposed to be revenue neutral, which means you collect that extra tax but you use it to reduce the property tax for everybody else in that neighbourhood. What we got instead wasn’t revenue neutral; the money is not going to be spent where it’s collected and it’s not up to the municipalities to make their own decisions. They’ve been forced into this and they object.”

Late last week, the tax was amended because the governing NDP needs support from the Green Party to pass the legislation this fall. Among the changes, British Columbians with a second, and vacant, property will only be taxed 0.5%, down from 2%, meaning that 75% of proposed revenue will be lost, and 50% of proposed revenue from Canadian residents who reside outside of B.C. are also eliminated.

Given the cost of enforcing compliance, Pavlov doesn’t think introducing the tax is worth it anymore.

“The lower taxes makes it less impactful—the smaller the amount, the less it matters,” he said. “How much revenue are they going to collect and is it worth the trouble? When the government does that calculation, they don’t think about the costs people incur for compliance.”

Foreign speculators will still pay the full 2%, however, after considering how difficult pulling money is out of countries like China, Pavlov says the tax is a paltry price to pay.

“The people who will be affected are people from the U.S.,” he continued. “Those people might not have a problem taking money out of their country, so to them the 2% might be very significant and you might lose that portion of investors, which I think is unfortunate because in my view they’re legitimate investors who want to help our economy and aren’t absentee owners.”

LandlordBC, which encourages filling vacant units with renters, is circumspect about the tax. According to the organization’s CEO, there are other ways to dissuade property owners from keeping their units vacant.

“We’d prefer to see a carrot approach or even tax breaks for these owners to put them in the rental pool,” said David Hutniak. “The government has applied a tax, and I don’t know that it’s the most effective way to do it. It could generate some money, but with the concessions they’ve given, it’s going to generate even less cash than originally predicted.”

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