Real Estate Market Update: Jealousy Tax

I was recently at a real estate event where a CPA (Chartered Professional Accountant) was sharing the impact of the new Federal and Provincial taxes on ownership of real estate, investing in real estate, and passive income from the ownership of real estate. The presenter asked if anyone liked paying taxes, so I shot up my arm and nodded yes. My reasoning? If I am paying taxes, I must be making average or better than average income. This is not a new concept for me. When I began my real estate career and investing roughly 25 years ago, I connected with an excellent accountant that gave me invaluable advice, and strategically organized a plan for building generational wealth in regards to all things taxation. Over the years, this has served me extremely well and I have been fortunate to earn a good living and contribute to Canada through paying my fair share of taxes.

How does the weather affect the real estate market?

My initial response to the question, “Who likes to pay taxes?” was from my long-term belief system. Over the years of being successful and paying my fair share of taxes, I answered “yes”. However, the more I have been thinking about this question, the more I am questioning the fairness in the Canadian taxation system. Both federally and provincially, our leaders are asking the so-called middle and upper class to pay more and more of the bulk of taxes. The middle class currently pays over 40% of their income in tax, and it is only going up. Moreover, many of the new proposed and implemented taxes the government is expecting the middle and upper class to take on, frankly, I call jealousy taxes.

Jealousy taxes have always been around—luxury car tax, luxury items subject to import tariffs, and so on. The government weighs the personal tax bracket heavily against the middle and upper class as to where the bottom 50% of earners pay the least amount of tax. A Canadian in 2014 earning more than $50,000 per year paid roughly 87% of the federal income tax, and almost 88% of provincial income tax. The wealthy Canadian earning more than $100,000 in 2014 paid 51.8% of all federal income tax, and 54.5% of all provincial income tax. These taxation numbers continue to rise.

The first real estate jealousy tax (PPT or Property Transfer Tax) imposed in BC real estate was in 1987 by Bill Vander Zalm of the BC Socred party. It was introduced as a tax to curb speculative buying. The average home price in Vancouver at the time was $147,000, and the tax was 1% on the first $200,000 and 2% on the balance. As I write this, there are only 10 homes in the entire Fraser Valley that are currently listed under $200,000. So much for curbing speculation and creating affordable housing as the so-called speculation tax of 1987 is now 30 years old and average home prices near $1,200,000. Over the last 30 years, whoever was running the show in parliament in Victoria became addicted to this incredible cash cow called PPT as it literally provided billions of dollars to their general coffers. In other words, a neverending ATM machine for the government in power.

Watch out for stealthy inflation.

As time progressed, the rate was scaled again to take advantage of the more expensive purchases and 3% was incorporated into any purchase over $2,000,000. Most recently, the new provincial NDP government and the City of Vancouver imposed a number of outrageous jealousy taxes regarding real estate in the province. As of February 21, 2018, the NDP increased the PPT on all residential properties over the amount of $3,000,000: the balance above the $3,000,000 was taxed at a whopping 5% of the fair market value. There is also the speculation tax that is similar to the City of Vancouver’s empty home tax—another jealousy tax. This tax takes aim at the BC resident that owns more than one home in BC, an out of province owner, or a foreign owner that does not intend on renting their property out for 6 months or more.  These people are subject to this new speculation tax, which already has been revised after much public backlash.

Jealousy taxes: aimed at the hard-working families and individuals, and the fiscally responsible planners and savers. I believe that these taxes send the wrong message as they penalize the taxpayer who pays considerably more than their fair share of taxes. If this taxation continues, I believe that eventually these upwardly mobile families or individuals will find a more desirable place or market to spend their hard-earned money. Listen up governments! Stop the jealousy taxes and find a way to balance the tax load on all citizens fairly.

Spring break is over and the market seems ready for some warm, sunny weather to kick off the spring market. March STR numbers (Sell Through Rate) were very similar to February. Strata properties remained in a seller’s to strong seller’s market, while single family remained in the balanced to seller’s market throughout most of the region. Affordability, or lack thereof, is still driving the trend lines for now.

It will be interesting watching the NDP’s new real estate taxation collide with the spring market over the next month or two. The questions that remain are these: will the market have enough strength and energy to push through the poor decisions the NDP party has made since being elected?  Or, will the market start to stumble in some areas after having run so strong for so long? I believe that the next few months will be a real test for some of the specific areas and property types already feeling the pressure from affordability, foreign buyer tax, and now the speculation tax. I am looking forward to watching the next 30 days unfold.

Find out which came first: the chicken or the egg.

Randy Dyck
Personal Real Estate Corporation
604-807-4366 or randy@eximus.com

STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales