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Mike Sullivan, an Ottawa resident, says his property taxes are set to nearly triple on the summer home in rural Mahone Bay, N.S., that he and his wife built on a vacant lot in 2014. That summer retreat isn’t a cramped cabin, at 3,000 square feet and two storeys. But it’s no 1-percenter compound either, he says.Justin Tang/The Globe and Mail

Nova Scotia is proposing to squeeze out-of-province property owners with two taxes that the government says will help to take the edge off of its burgeoning housing crisis by freeing up units for the province’s residents.

The province says it is responding to the housing crunch sparked by a surge in population since the onset of the pandemic, particularly in Halifax. However, critics of the measure contend that it not only unfairly targets Canadians from outside of Nova Scotia with soaring property tax bills, but will also ultimately prove to be an ineffective bit of political theatre.

Under legislation being debated, non-residents would face two levies. There would be an annual 2-per-cent provincial property tax, on top of existing property taxes. The second is a deed-transfer tax paid at the time of sale, with 5 per cent levied on the higher of the purchase price or the assessed value of the property.

It’s the annual property tax that has generated the most controversy, particularly since it is being implemented during a run-up in housing prices. Non-resident property owners were already facing steep increases in taxes since increases in their annual property-value assessments are not capped, unlike those for resident Nova Scotians. The new measure will magnify that tax hike for the 27,000 properties held by out-of-province owners.

Mike Sullivan, an Ottawa resident, says his property taxes are set to nearly triple on the summer home in rural Mahone Bay, N.S., that he and his wife built on a vacant lot in 2014. That summer retreat isn’t a cramped cabin, at 3,000 square feet and two storeys. But it’s no 1-percenter compound either, he says.

“It’s not a mansion, we don’t own an island,” the 62-year-old retiree adds.

In the short term, his annual property taxes will jump to $15,000 from $5,500. But he’s worried the bill could get much bigger as property values continue to rise, with his back-of-the envelope projections indicating his annual levy could hit $30,000 within a few years. Ironically, Mr. Sullivan was born in Halifax, and his mother still lives in the province. But that’s not enough for him to be able to claim the tax-exempt status of a resident Nova Scotian.

Mr. Sullivan could avoid the pinch of the new tax if he rents out his house to a resident Nova Scotian for the entire year. But that would negate the point of having a summer retreat.

He says he and his wife will likely end up selling the property because of the higher taxes – adding that he would never have purchased his lot and built a house if the tax had been in place. “No one in their right mind is going to pay three times as much tax as their next-door neighbours.”

But any sale could get snared by the other targeted tax planned by the Nova Scotia government, which would require buyers to pay a 5-per-cent levy at the time of purchase. Sellers don’t pay that tax, at least directly. But that tax, along with the annual levy, will make such summer homes less financially attractive to out-of-province buyers.

In a statement, the Nova Scotia government said the province’s population is growing at the fastest pace in decades, and that it is moving to ensure that homes remain affordable, adding that the price crunch is no longer limited to large urban centres. The government said it expects the two tax measures will increase the supply of housing available to Nova Scotians, as well as generating the revenue. (The provincial budget forecasts the two levies taking in $81-million in the current fiscal year.)

However, the Nova Scotia Association of Realtors says the tax’s weight will fall on properties far distant from the areas where the province’s housing crunch is most acute. Paige Hoveling, a spokesperson for the association, said her organization applauds the intention to increase the stock of affordable housing.

But the group says many of the summer homes caught up in the tax aren’t suitable for year-round habitation. And in many cases, they are too far away from cities and large towns to be feasible options for Nova Scotians who are scrambling to find affordable accommodation. That caveat certainly applies to Mr. Sullivan’s rural property, which is more than a 45-minute drive from Halifax.

Lars Osberg, professor of economics at Dalhousie University, echoed that point, saying he does not believe the proposed tax measures will have much of an effect, particularly since population growth has been concentrated in Halifax.

The statement from the Nova Scotia government also asserts that other provinces have introduced similar measures. It doesn’t note that neighbouring New Brunswick is headed in the opposite direction, with a plan to slash in half the property tax rates for non-owner-occupied housing – including those owned by out-of-province residents.

However, other provinces, including British Columbia, have introduced taxes on homes that aren’t principal residences. But B.C.’s version is structured much differently, most notably in that it applies to B.C. residents as well as non-residents. Still, overlapping exemptions and credits mean that virtually all B.C. residents are exempt from the tax, with just 1 per cent paying the province’s levy.

Prof. Osberg said the rationale for the tax is less about economics and far more about a political calculation “to give the appearance of action.” And there is not much political downside to taxing those who can’t vote in provincial elections, he notes.

Mr. Sullivan has his own view, born of his personal history in the Maritimes. The tax taps into a parochial streak in the province, a subtle resentment of those whose local roots don’t extend back generations. “The expression is, ‘Come from away,’” he said.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

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