B.C. Finance Minister Mike de Jong is considering making changes to the existing Property Transfer Tax (PTT). A “Luxury Tax” on real estate could be implemented by increasing the PTT on high-end properties.
The boom in real estate sales and the spike in property values have added an extra $200 million to the province’s coffers, as reported by BC Local News (B.C. eyes luxury tax on high-end property, Tom Fletcher). The article mentions that the province receives over $1 billion a year from this tax and that it was introduced in 1987.
The Vancouver Sun states that the PTT is an essential part of provincial revenue (Vaughn Palmer: Property transfer tax windfall keeps B.C. budget in the black, Sept 15, 2015). The article noted that there was a hint that the upper 2% PTT rate might be increased. Some of the additional revenues from a luxury tax might be used to “provide relief in the middle of the market.”
The existing Property Transfer Tax does provide a mechanism for capturing some of the activity in real estate sales. However, there’s a currently a huge loophole that allows companies to flip properties without paying any taxes. A numbered company can own a residential property. If the company changes hands, then the ownership of the asset also changes hands, but no taxes are paid. The loophole could easily be closed with new regulations and with cooperation between the land titles office and the corporate registry.
Another option for a luxury tax on real estate is to implement it on a municipal level.
Should the City of Vancouver and other B.C. municipalities be allowed to levy their own property transfer tax? Currently it’s the Province of B.C. that takes all of the revenue from property transfer taxes. Vancouver collects a Development Cost Levy (DCL) that is paid out only once. A local land transfer tax would allow ongoing reinvestment into community services. The City of Toronto collects a land transfer tax with rates of 0.5%, 1% and 2% (it’s a separate levy from Ontario’s provincial land transfer tax).
Speculators generally dislike the PTT because it drives up the costs of flipping properties. The PTT allows some capture of sales value for government services. Is the PTT too low? There are jurisdictions that can charge 4% for the upper bracket of a land transfer tax. There are also variable rate PTTs that are reduced over time. Property owners are rewarded for holding onto land for the long term (with a lower PTT) and conversely short-term speculators are penalized. Some other jurisdictions allow exemptions from PTT in cases of inheritance by family members.
Given the fiscal realities of the B.C. Budget, it’s likely that the PTT will stay with us for a long time. How could the PTT be fine-tuned? Should municipalities also be allowed to levy a separate property transfer tax? Apart from a luxury tax, what other policies could help dampen the rapid increases in housing costs?