Foreign buyer’s tax and empty home tax affecting luxury housing market
Canadian Real Estate Wealth
Vancouver’s housing market is buckling under a slew of taxes and regulations introduced since 2016 to tame years of relentless growth that made the city the most unaffordable on the continent.
The high end felt the impact first and has been the hardest hit: prices in West Vancouver, Canada’s richest neighbourhood, are down 17% from their 2016 peak. The slowdown is now broadening: home sales in March were the weakest since the financial crisis and benchmark prices fell 8.5% from their record last June.
It’s become more costly to both buy and own expensive homes, particularly for non-resident investors and foreigners. To get a sense of the impact from the municipal, provincial and federal measures, take as a hypothetical example, the province’s most valuable property: the $73.12 million house belonging to Vancouver-based Lululemon Athletica Inc. founder Chip Wilson. A foreign purchaser of the home who leaves the property empty for much of the year would end up paying as much as C$20.8 million in taxes as follows:
Taxes on purchase:
- Foreign buyers’ tax of 20%: $14.6 million surcharge on top of sales price
- Property transfer tax rate climbs to 5% on most expensive homes: $3.7 million
Ownership taxes:
- Municipal vacancy tax of 1% on assessed value: $731,200 a year
- Provincial speculation and vacancy tax, 2% of assessed value: $1.46 million a year
- Provincial luxury home tax known as the additional school tax of 0.2% to 0.4% of assessed value: $278,480 a year
Additional government moves:
- Federal rules tightening mortgage lending made it harder to obtain larger mortgages and harder for foreign buyers to borrow
- Proposed legislation will expose anonymous Vancouver property owners in a public registry to stymie tax evasion, fraud and money laundering.
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