Vancouver’s Foreign Buyer Transfer Tax
Though we tend to focus on tax news and tax developments happening here in New York, it’s useful to look elsewhere. We occasionally take a peek at tax news from other parts of the country and around the globe. This isn’t just for entertainment purposes. Sometimes a development in one part of the country, or another part of the world, can eventually affect how things work here. For instance, it’s not uncommon for state governments across the U.S. to adopt tax measures implemented elsewhere. As we’ve seen and emphasized so many times, tax is a constantly changing field, Very often changes in one area lead to changes in neighboring or even distantly removed areas. Vancouver’s Foreign Buyer Transfer Tax may prove to be one such change.
Vancouver’s Foreign Buyer Transfer Tax is a new real estate tax. It’s designed to artificially correct imbalances in the local Canadian market. This new tax took effect on August 2nd, 2016. It’s a direct response to a then-recent influx of wealthy foreign buyers. This influx has impacted several major Canadian cities along with Vancouver. Those cities also include Toronto and Montreal. In this post, we will look at the basic structure and purpose of this new Vancouver real estate tax. We’ll then discuss its potential impact on other markets. As we’ll see, this tax may end up influencing policy decisions in other markets depending on its success.
The Foreign Buyer Transfer Tax
The influx of wealthy foreign real estate buyers, mostly Chinese, has caused the Vancouver market to see dramatic real estate price increases. Vancouver’s Foreign Buyer Transfer Tax tries to correct this surge. The tax is a 20% surtax on foreign buyers. It had originally been 15% but was increased to 20%. It is imposed whenever a foreign buyer purchases a piece of real estate. Under it, they must pay an additional 20% on top of the purchase price.
Hence, if a foreign national decides to buy a new Vancouver property going for $3 million, he or she will face an additional $600,000 on top of the going price. Given current median home prices in Vancouver, it’s easy to see that this tax can quickly have a serious impact on a transaction. In November, 2017 the median Vancouver home price was roughly $1.1 million.
The purpose of Vancouver’s Foreign Buyer Transfer Tax is twofold. First, to help correct the market so that local buyers can be more competitive. Second, to generate revenue for the province’s pocketbook. Analysts have conflicting opinions on the tax’s effectiveness to date. Despite the conflict, the numbers suggest that the tax has been successful on both of these fronts to some degree. Average home prices have not dropped dramatically as a result of the tax. Nonetheless, the data show that price growth has slowed down since the tax’s creation. It’s very likely that prices would rise at much faster rates if the tax isn’t in place. In any case, the tax has certainly generated substantial revenue for the province. It’s removal, therefore, seems highly improbable in the short-term future.
The Impact of Vancouver’s Foreign Buyer Transfer Tax on Other Markets
Copycatting is a well-known phenomenon in the arena of political administration. Given that other markets outside of Canada are facing similar problems, it is very possible that Vancouver’s foreign buyer tax may be imitated elsewhere. The Foreign Buyer Transfer Tax may end up causing significant numbers of foreign buyers to seek opportunities elsewhere. As a consequence, these other markets may eventually end up implementing a new tax. Similar to Vancouver’s, it may deal with this influx in a manner very similar to Vancouver.
The Seattle political establishment has paid considerable attention to Vancouver’s Foreign Buyer Transfer Tax. Also to its possible effects. Seattle’s real estate market is nowhere near as expensive (on average) as Vancouver’s market. Nonetheless, there’s a worry that Vancouver’s Foreign Buyer Transfer Tax will create an incentive for buyers to migrate south to avoid the tax. As of right now, there’s very little evidence to show that Vancouver’s tax has had any appreciable impact on Seattle. But this could change in the future. Seattle home prices may continue to rise. Hard evidence may surface also that this rise is associated with increased purchases by foreign buyers. If so, it’s very possible that Seattle lawmakers will implement their own version of Vancouver’s Foreign Buyer Transfer Tax. Their motivation? To help stabilize the market, of course.
Call A NYC Tax Attorney To Discuss This Blog
Global tax news is always of interest to the attorneys at Mackay, Caswell & Callahan, P.C., We know that global developments can impact domestic trends. We have an interconnected global society. Okay, Seattle? It’s a national market. But why quibble?
The point is that it’ imperative that we continue to be aware of what’s going on outside of our great State. If New York experiences a sudden influx similar to what has been seen in Canada, we might implement our foreign buyer tax. Did we mention Amazon in Long Island City soon? Think about it.
It’s awareness of global trends which sets our firm apart from the rest. If you’re looking for assistance on any tax issue, don’t hesitate to reach out. One of our top New York tax attorneys is available to begin resolving your issue immediately.
Image credit: Nick Kenrick
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