Thousands of Metro Vancouver real estate deals caught by tax deadline

‘Last week was pretty hectic,’ realtor said of rush to avoid new tax by midnight cutoff

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For some the last few weeks was a rush to wrap up real estate deals before Aug. 2 tax was imposed on Metro Vancouver property deals. (DeWitt Clinto/Flickr)

Thousands of home buyers and sellers in Metro Vancouver reacted with ‘shock and disbelief,’ madly rushing to beat the Aug. 2 deadline of the new 15 per cent foreign buyer real estate tax.

Realtors estimate 3,000-to-4,000 deals were affected.

“It’s so fast. Just everyone is shocked,” said Jin Liu, a realtor with Remax.

After the legal documents flutter to the floor industry watchers warn there will be challenges to the new tax, seen by many as unfair.

Some say it violates the North American Free Trade Agreement (NAFTA) which prohibits governments from imposing policies that punish foreigners. Top lawyers say the tax is ripe for a constitutional challenge.

The foreign buyer tax, aimed at cooling Vancouver’s torrid housing market, was announced July 25. The aim was to chill speculative investing and preserve affordable homes for people living and working in Canada.

Up to 4,000 deals affected by new tax

Buyers and sellers were caught in the sting of the Aug. 2 tax that has been applied even to deals struck long before it existed.

“We weren’t given notice …. so most likely the deals will collapse. It’s not fair for everyone,” added Liu.

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Up to 4,000 Metro Vancouver real estate deals were affected by the quick introduction of a 15% tax on real estate deals, and were not allowed to be ‘grandfathered’ to avoid the tax introduced before the deal formally closed.
He hopes the August market slowdown is just summer doldrums, but worries about the tax.

“It’s going to affect everyone .. builders, electricians, plumbers,” said Liu.

Realtors say the 15 per cent tax aimed at foreign buyers affected three to four thousand deals struck before the deadline.

Cost of tax

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“The ripple effect [of this tax] is going to affect many, many Canadian families,” said Jonathan Cooper of vice president at Macdonald Real Estate Group. (Charlie Cho/CBC)
On a half-million dollar deal the tax represents $80,000 to $90,000, said Jonathan Cooper, vice president at Macdonald Real Estate Group in an interview with CBC’s The Early Edition.

“Fifteen per cent is substantial,” said Cooper. “It’s been a hectic week.”

While he has not seen the tax collapse a deal yet — as the buyer would then lose a deposit and potentially face a lawsuit — he has seen a huge impact.

He described an immigrating family who recently bought a home on Bowen Island for $750,000 in time for their daughter to attend UBC, only to face an extra $100,000 to pay.

“It was a burden for them. This isn’t the kind of family that has an extra $100 thousand dollars just lying around,” he said.

Long-time Canadian home owners hurt by tax

Cooper said he dealt with dozens of cases like this — mid-range buyers frustrated by the lack of warning before the tax was imposed and the B.C. Government’s decision not to grandfather deals struck long before the Aug. 2 tax deadline.

The sudden change in final prices jeopardized deals and hurts everybody connected to the real estate deal said Cooper, who described the “shock and disbelief” of a retired Canadian couple who were trying to sell their family home.

The additional tax left their buyers scrambling to come up with $300,000 they did not have.

‘Shaken his confidence in Canada’

“The ripple effect [of this tax] is going to affect many, many Canadian families who are not supposed to be the targets of this taxation,” he said.

But for Cooper and others the tax aimed at foreign buyers is much more damaging.

Critics are calling for the 15 per cent levy to be challenged under the free trade agreement and in court on the basis of discrimination.

For Cooper, whose own extended family immigrated from Malaysia — via the Philippines — it’s personal.

“They are coming here for the same reasons we come here. For education. For clean air. the same reasons that we love living here,” said Cooper, describing the emotional cost of the tax aimed at one buyer because of his country of origin.

“The [buyer] told me that this has shaken his confidence in Canada as a place to invest and a place to raise his family,” said Cooper.

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Anybody who is not a Canadian citizen of a permanent resident will now be charged 15 per cent extra tax on real estate transactions. (Dave Dugdale/Flickr)

The article was originally posted on CBC News, August 2, 2016.   Listen to the audio interview around the 2:11 point of this clip.

 

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