The Miscellaneous Statutes (Housing Priority Initiatives) Amendment Act came into effect on August 2nd. It currently Applies to the “Greater Vancouver Regional District.”
The Act includes amendments to the Property Transfer Act imposing a 15% tax on foreign buyers in Vancouver. Under the Act, foreign buyers include:
- Foreign nationals: transferees who are not Canadian citizens or permanent residents.
- Foreign corporations: corporations that are either (a) not incorporated in Canada or (b) incorporated in Canada, butcontrolled in whole or in part by a foreign national or other foreign corporation.
- Taxable trustees: a trustee of a trust of which (a) any trustee is a foreign entity or (b) immediately after registration, a beneficiary of the trust who is a foreign entity holds a beneficial interest (i.e. bare trustees).
Commentators have proposed various methods of potentially avoiding the tax, including through unregistered bare trusts (i.e. a Canadian nominee holding property in trust for a foreign national), corporations capitalized with foreign money (i.e. voting shares domestically controlled, but shares held by foreign investors), sales of Canadian corporations owning property to foreign nationals, and pre-completion assignments by foreign investors (i.e. continued speculative purchasing of new builds by foreign nationals).
There are inherent risks in these potential methods. Further, the Act imposes stern penalties on “anyone who participates in tax avoidance.” These penalties include: being required to pay unpaid tax plus interest, a fine of up to $200,000.00 for corporations or $100,000.00 for individuals, and up to two years in prison. Members of the Vancouver real estate industry are already facing scrutiny for counselling foreign nationals on how to avoid the new tax, with investigations currently ongoing and potential sanctions pending.
Whether and for how long the tax will last remains to be seen. It is possible, if not likely, that litigation will arise alleging that the tax breaches the Charter of Rights and Freedoms or international trade agreements like NAFTA or CETA. For example, the Charter imposes the requirement that “Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on… national or ethnic origin…” It is clear that the new tax breaches the Charter on this ground and it may be up to a court to determine whether this breach is justifiable in the circumstances.
In any event, it is inevitable that this tax will drive foreign investment across the Salish Sea and increase demand in an already red hot Victoria real estate market.
Please contact us for a consultation if you are concerned about how this new change may affect you.