Vaughn Palmer: NDP backs down on half-baked speculation tax
First and foremost, the New Democrats no longer intend to treat most British Columbian owners of vacation and recreational properties as real estate speculators in their own province.
Second, many of the province’s prime vacation and holiday communities were placed beyond the reach of the tax, relief that will apply to Canadians from other provinces, Americans and other foreigners as well as British Columbians.
The geographical exemption now includes the Gulf Islands, Parksville, Qualicum, Nanoose, Harrison Lake, Bowen Island and the Juan de Fuca part of Premier John Horgan’s own riding in the provincial capital region.
Third, those British Columbians still subject to the tax — mainly owners of multiple properties in urban centres that are not rented out on a long-term basis — will be in line for additional relief.
They’ll pay only the entry level rate of 0.5 per cent of assessed value, even after the tax jumps to two per cent for foreign buyers in 2019 and beyond. They’ll also be in line for a $2,000 tax credit, effectively an exemption on the first $400,000 of assessed value.
Fourth, Albertans and Canadians from other provinces will get a break in the longer term as well, paying only one per cent of assessed value in 2019 and beyond, down from the two per cent projected initially.
The end result was a tax targeted more toward foreigners and on properties deliberately left vacant in large urban centres.
“So people in smaller communities, those with cottages at the lake or on the islands, will not pay this tax,” said the finance minister via press release. “People with second homes outside of high-cost, designated urban areas will not pay the tax.”
She further estimated that the broad brush exemptions now mean less than one per cent of British Columbians will end up paying the tax.
James tried to dress up all of these changes as a combination of consultations and clarification of matters that had never been part of the original vision for the tax.
But up to the time of the announcement Monday, her own ministry’s website continued to advertise the broader geographical reach of the tax. A fact sheet also indicated that B.C. owners of vacation properties would be taxed as speculators, though they would get at least some of it back on their provincial income taxes the following year.
The backdown left lingering controversies involving some communities. One was the continued inclusion of Kelowna and West Kelowna among the urban centres targeted by the tax. But James said it was because of a shortage of rental properties in those communities, estimated to be the third worst in the province.
Still beyond the reach of the tax is Whistler, which by all accounts has a serious shortage of affordable rental space for the many people who work there in the service industries.
James said the government is looking at other means to increase the supply of affordable rental housing in the ski resort. She said Whistler was excluded from the speculation tax because it is a resort municipality, without explaining why that justified the exemption.
Nor was she able to clarify one aspect of the proposed exemption for properties put into the long-term rental market. “Long term” was defined as “a property that is rented out for at least six months out of the calendar year in increments of at least 30 days.”
But what about places in strata projects where the rules forbid subletting? James said the government is looking at ways to “grandparent” such properties out of the reach of the speculation tax on a temporary basis.
Why temporary? The finance minister said it was to discourage existing strata projects that do not have such a ban on subletting from imposing one.
But that got me wondering if the NDP plan is to ban the ban — no longer allowing strata projects to impose restrictions on subletting as a way of increasing the stock of rental housing.
Details to come when the enabling legislation on the speculation tax is tabled in the fall sitting of the legislature, Oct 1. Which stands as further evidence that the New Democrats took the plunge on the speculation tax without thinking through many of the implications.
Also up in the air is the projected impact of these changes-upon-changes on projected revenues from the tax.
James, in her Feb. 20 budget, estimated that the tax would bring in $487 million over three years. Asked Monday about the impact on provincial revenues of all those geographical exclusions, plus the relief for British Columbians and Canadians from other provinces, she said there would be no scaling back of the original budget estimate.
“We expect that these numbers will remain,” she told reporters. “We were very conservative with our original numbers.”
Hard to believe that after all those changes in scope, the ministry would still be able to bank on returns of almost half a billion dollars. It left one to think that either the initial estimate was as half baked as the tax, or the current one is an exercise in wishful thinking.
Neither prospect is all that flattering to a government forced into its first major backdown on a tax measure.