Will foreign investors fight or flee from the B.C. foreign homebuyers tax?

Foreign buyers can pay the new tax, try fight or avoid it, or buy outside B.C.
Foreign buyers can pay the new tax, try fight or avoid it, or buy outside B.C. (Photo: Reuters)

On Monday, the British Columbia government introduced a brand new tax in an attempt to cool the overheated Vancouver housing market. The tax takes effect on August 2, 2016 and adds a whopping 15 per cent on the price tag of a home or condominium for a buyer who is not a permanent resident or citizen of Canada.

The way the new legislation works is that if a foreign investor wants to buy real estate for $5 million, the new tax will add $750,000 to the property transfer tax expense for the buyer.

That’s a pretty steep price to pay to own real estate in Vancouver and its unclear how foreign buyers will react to the new tax.

What could foreign buyers do?

Foreign buyers have a few choices: they can pay the new tax, they can try to fight or avoid the new tax, or they can buy outside of British Columbia.

Those investors for whom a few hundred thousand in taxes is not a big deal likely won’t bat much of an eye at the tax.

Foreign buyers could also try to legally challenge the new tax but it’s questionable whether that would succeed. Canadian courts have a high-regard for government created laws and as long as there is a good policy reason for introducing such legislation, they will usually uphold it.

Some foreign investors may try to find a loophole around the tax. Buyers could still purchase real estate in without paying the tax by buying property through a corporation that is domestically controlled.

However, foreign buyers should be aware that if they structure their home purchase to avoid the new tax, that could have serious consequences, resulting in a fine of up to $100,000 for the foreign buyer, up to $200,000 for the foreign corporation, or up to two years in prison.

In a bid to avoid the tax, foreign buyers could decide to invest in the Toronto housing market instead but they may have to hurry, because Ontario is also eyeing a similar tax as Toronto has almost as hot a housing market as Vancouver.

If Ontario introduces such a tax, it’s likely then that foreign buyers will look at other housing markets in Canada, such as Calgary and Montreal, the latter of which has an oversupply of condominiums and would likely be ripe for the plucking for foreign investors.

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