The Liberal Party could go much further with their promise to create a special tax for foreign property owners not residing in Canada, housing experts say.
At a campaign stop in Victoria on Sept. 12, Justin Trudeau said a re-elected Liberal government would implement a nationwide one-per-cent tax on the properties of foreign owners not residing in Canada. The proposal is based on a speculation tax already implemented in B.C.
But Andy Yan, director of Simon Fraser University’s city program, said that if the tax were instead applied to property owners who are not paying income taxes in Canada, the government could collect much more, conceivably hundreds of millions of dollars in tax revenues in B.C. alone. Considering the extent of non-resident ownership in Canada, Mr. Yan said, they need “to cast the net much wider.”
Mr. Yan calculated that non-residents – people residing outside of Canada – own $99-billion worth of residential property in B.C. In Ontario, non-residents own almost $70-billion worth of property. Based on those figures, such a tax would raise more than $1-billion annually.
Mr. Yan used data provided by the new Canadian Housing Statistics Program. The “non-resident participation” category mostly comprises foreign owners and satellite families, so it’s a reasonable proxy for analysis, Mr. Yan says. Satellite families often have a mix of residents and non-residents on title. For example, the mother in a household may have Canadian residency, while the father lives and works outside the country.
The revenue, he says, could go towards the housing strategy to create affordable housing. Of course, projected revenues would drop if non-residents sold off their properties in response to the tax, but for many, it would become the cost of doing business.
But Mr. Yan says the numbers are only substantial if the government were to tax non-resident owners – regardless of citizenship and their status as landlords.
“It really depends on how they define ‘non resident,’ and how they determine who qualifies,” Mr. Yan says. “If foreign owners who rent out their properties are exempt, then the number greatly drops.”
The Liberal Party says it would give non-resident foreign owners who rent out their properties an exemption from the tax.
The details on the proposal are scant and Liberal Party spokesperson Joe Pickerill did not respond to questions about when the tax would be introduced, or who would be exempt, other than properties that were rented.
“We will have more to say on the details,” he said in an e-mail. “This is part of a suite of measures that we have introduced to date to tackle the affordability issues.”
He said that they’d looked to B.C.’s speculation tax as a benchmark for their announcement.
“This is not intended to be a revenue generator but rather a disincentive for speculators leaving homes unavailable to residents. This does not apply to properties that are rented out longer term [plus six months]. This is about getting people into homes.”
The Liberals have been criticized for not releasing costing estimates of campaign promises on the day that they are announced. The Parliamentary Budget Officer’s new mandate is to provide independent cost estimates of campaign proposals. The PBO has only published Conservative and NDP cost estimates so far. Meanwhile, the Liberal Party has said that it will release costing reports only when its full platform is unveiled later in the campaign.
B.C. introduced a similar tax aimed at speculative buying that began in 2018. B.C.’s Finance Minister Carole James recently said the tax had so far brought in $115-million. Two-thirds of the taxpayers were foreign owners and satellite families. The tax, which covers mostly urban areas of B.C., includes Canadians who own secondary properties that are left empty, but exempts rental properties. If left empty, Canadian citizens or permanent residents pay 0.5 per cent. Foreign owners and satellite families are taxed even if they reside in the property. They are only exempt if that property is rented out, either in part or in whole.
The government credits the tax as part of the reason for the Lower Mainland’s cooling market. Sales in Greater Vancouver for June were the lowest in 19 years, according to the Real Estate Board of Greater Vancouver.
Mr. Yan does not believe that foreign owners and non-residents who rent out their properties should be exempt from the tax.
“This should be an automatic 1 per cent charge. You should pay a surcharge if you do not pay Canadian income tax while owning Canadian property. If you want membership to the club, you should pay your dues.”
Josh Gordon, assistant professor at SFU’s school of public policy, says the proposal likely doesn’t go far enough, if the goal is housing affordability.
“As I understand it, the Liberals would want to apply the tax to properties that are owned by non-Canadian citizens who are non resident and where the property is vacant. In my view, this is too narrow an application. For large urban areas, it should be applied even if properties are rented,” Prof. Gordon says.
“The reason why foreign ownership introduces distinct challenges is because people with foreign income or wealth can purchase property on an advantageous basis since they will not be paying income taxes like other Canadians, who are competing for the same property.”
Sarah Moser, professor of geography at McGill University, studies the phenomenon of new cities popping up around the world and the purchasing of housing not as homes, but as an asset class. She calls Vancouver “a cautionary tale” and sees signs that investors are looking to Montreal next, now that Vancouver and Toronto have pushed them away with foreign-buyer taxes.
“If the investor is a person or company that just buys real estate as an asset class, I don’t think we need those investors. I take a bit of a hardline approach on this,” Prof. Moser says. “I don’t really know how Vancouver has benefitted from 30 years of being an investment target. It seems that no one can afford to live there and young people are leaving, which is bad for the economy and bad for society. I don’t think that our goal as cities should be to just attract real estate investors.
“I agree with the governments’ move to try to slow things down and reduce foreign speculation in real estate – but not just foreigners, as in non Canadians, but [all speculative] investment in real estate.”