Provincial property transfer taxes and fees

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1 Select Standing Committee on Finance and Government Services Room 224, Parliament Buildings Victoria, BC V8V 1X4 Submitted to committee members by Committee members: This year s budget consultation paper is correct in noting that British Columbians generally have one of the lowest overall tax burdens in Canada. The startling exception to that statement is the Property Transfer Tax. BC has the highest provincial property transfer tax in the country, putting the province at a disadvantage and working against efforts to encourage individuals and businesses to relocate to British Columbia. Provincial property transfer taxes and fees Comparison using 2014 BC average home price of $570,000 $9,400 $7,875 $8,450 $7,050 $5,700 $1,710 $2,379 $2,850 $164 AB SK BC ON NL NB PEI MB QC Representing the interests of more than 19,000 REALTORS and 11 real estate boards around the province, the British Columbia Real Estate Association (BCREA) supports efforts to maintain and improve the province s economic strength. The Association also advocates for policies that improve market housing affordability, which is why BCREA has made recommendations to minimize the PTT s negative impact since the tax was introduced in Georgia Street W, PO Box 10123, Pacific Centre, Vancouver, BC V7Y 1C6 President Scott Russell Past President Jake Moldowan President-Elect Deanna Horn Chief Executive Officer Robert Laing bcrea@bcrea.bc.ca (tel) (fax)

2 Page 2 About the Property Transfer Tax Structure The tax has always been applied in the following way: 1% on the first $200,000 of the fair market value of a property, and 2% on the remainder. This static structure is entirely at odds with BC s dynamic real estate market, and has placed an unfair burden on BC homebuyers tax on wealthy homebuyers Average home price: $101,916 2% PTT applied to: 5% of homes sold 2014 tax on most homebuyers Average home price: $568,405 2% PTT applied to: 85% of homes sold Current context The fiscally-prudent approach of BC s Minister of Finance has clearly yielded benefits. BC is in a solid financial position, with successive balanced budgets and a surplus forecast for the current fiscal year, even after the first quarter analysis. But fiscal prudence is not just about saying no; sometimes, a strategic yes is in order. In fact, the government made such a decision with Budget In line with a recommendation of the Select Standing Committee on Finance and Government Services, the First Time Home Buyers Program was amended by increasing the PTT exemption threshold to $475,000 from $425,000 for new buyers, at an estimated cost of $8 million. REALTORS and BCREA applauded this strategic move. Budget 2016 presents an opportunity to affordably improve the structure of the PTT to make it more fair for homebuyers today and in the future. While BCREA understands the government s objective to balance the budget, adjusting the PTT could stimulate additional activity in the real estate market and encourage spending related to property transactions. Adjusting the PTT would certainly demonstrate an understanding of the important role of real estate and property owners in the provincial economy. Recommendations Until elimination of the PTT is possible, the following recommendations are intended to improve tax fairness for homebuyers. Increase the 1% PTT threshold from $200,000 to $525,000, with 2% applying to the remainder of the fair market value. A threshold of $525,000 will modernize the PTT, more closely reflecting the average price of homes sold on the Multiple Listing Service System in BC. Homebuyers throughout the province will benefit

3 Page 3 significantly from an increased 1% PTT threshold, and make a meaningful improvement in affordability in the most expensive markets, such as Vancouver and Victoria. In the 2015/2016 fiscal year, the PTT is expected to deliver more than $1 billion of revenue to the provincial government. While BCREA s recommendation to increase the 1% PTT threshold will result in less tax revenue, it would put the dream of homeownership within reach of more families throughout BC, and free up others to undertake home renovations or other spending. Increasing the PTT threshold could potentially stimulate housing demand, partially offsetting the lower PTT revenue. Increasing the threshold will also put British Columbia s transfer tax on a more competitive footing with other provinces, creating consistency in the government s overall tax policy and truly opening the province for business. 1% PTT Threshold Options Projected Revenue Impact of Changes to the 1% PTT Threshold Revenue Impact Residential Non- Residential First-Time Home Buyer Program Total Loss of Revenue 300, , , , , , , Note: Revenue impact estimates are based on BC Assessment tax roll data for 2014 and First Time Home Buyer exemption data for fiscal year Index the 1% PTT threshold using the MLS Home Price Index, and make adjustments annually. Indexing the 1% threshold is a critical and affordable step, which will ensure that the PTT has the same impact on current and future homebuyers. Every year, BC homebuyers pay an increasingly unfair amount of PTT per transaction because the tax structure has never Projected Revenue Impact of Indexing the 1% PTT Threshold changed. Fiscal Year Revenue Impact The impact of indexing on provincial revenue would be minor. In fact, in the first two years, it would be comparable to the investment made in the First Time Home Buyers Program in Budget 2015/ / / / / Note: MLS HPI prices were assumed to rise in line with 2% inflation over the projection horizon.

4 Page And the goodwill from homebuyers and real estate sector stakeholders would be significant. From a strategic perspective, indexing the 1% PTT threshold would deliver substantial value; from a practical perspective, indexing would help improve tax fairness for homebuyers now and into the future. Information about the MLS Home Price Index is available at Economic Benefits of Real Estate Sales Housing is a significant economic contributor to the provincial economy. The sale of existing 600,000 homes produces substantial direct and indirect economic impacts. A 500, study by Altus Group Economic Consulting estimates that 400,000 the average housing transaction in BC results in $64,500 in 300,000 expenditures on services, 200,000 renovations, taxes and other household purchases. This is well 100,000 above the Canadian average. The sale of existing homes is also a 0 potent source of job creation, supporting more than 35,500 total BC jobs, annually. BC MLS Average Home Price, Conclusion If the PTT is to remain, due to its contribution to provincial revenue, then it is time to restructure the tax to reflect market conditions and assist BC families who face the highest home ownership costs in the country. BCREA asks the Select Standing Committee on Finance and Government Services to review the recommendations in this submission and forward them to the Minister of Finance for inclusion in Budget REALTORS and BCREA recommend the provincial government: 1. Increase the 1% PTT threshold from $200,000 to $525,000, with 2% applying to the remainder of the fair market value. This change will particularly benefit homebuyers in expensive markets, such as Vancouver and Victoria. 2. Index the 1% PTT threshold using the MLS Home Price Index, and make adjustments annually.

5 Page 5 Thank you for this opportunity to address the topic of ensuring the economic health of the province. Together, the real estate sector and elected officials can make dramatic improvements to housing attainability with simple adjustments to the province s tax structure. BCREA representatives are pleased to discuss these issues further, as well as provide research or other support to help improve housing affordability for British Columbians. Yours sincerely, 1 Robert Laing Chief Executive Officer About the British Columbia Real Estate Association The British Columbia Real Estate Association (BCREA) is the professional association for more than 19,000 REALTORS in BC, focusing on provincial issues that impact real estate. Working with the province s 11 real estate boards, BCREA provides continuing professional education, advocacy, economic research and standard forms to help REALTORS provide value for their clients. To demonstrate the profession s commitment to improving Quality of Life in BC communities, BCREA supports policies that encourage economic vitality, provide housing opportunities, respect the environment and build communities with good schools and safe neighbourhoods.