Tax Changes in B.C Mean Stress for Long-Time Homeowners
May 15, 2018
The British Columbia budget recently revealed a school-tax increase that will calculate tax at 0.2 percent on property valued above $3 million and 0.4 percent on property valued above $4 million. A small group of long-term homeowners in British Columbia are claiming that they will not be able to afford the increase and that they may be forced to move as a result. This has led to mixed reactions.
A Case Study
Lynne Kent (aged 71) and her husband bought their three-bedroom bungalow in Kitsilano in the early 1970’s for about $40,000 (which was their full household income at the time).
Both currently retired, the couple’s income comes from CPP and Old-Age Security payments, plus some savings. The introduction of the new school taxes means an extra $2000 expense for the couple. Even though the property is now worth well over $3 million, they argue that they did not purchase it as a money-making asset, but rather, as a home. They acknowledge that they can certainly sell the property and are eligible to defer both the newly introduced tax and other taxes. However, they note that they have lived in the home since they purchased it and have deep sentimental ties to it, noting that they raised their children there, their grandchildren visit often, and they hope to welcome great-grandchildren. The couple is also ideologically against the idea of deferring taxes, noting that it would mean that the province would be “stuck with the tab” in the meantime.
Protests Against the School Tax
The introduction of the increased school tax resulted in protests. A town hall meeting in the Vancouver-Point Grey riding was cancelled due to security concerns. An online petition with more than 12,000 signatures characterizes the changes as a “cash grab” on “vulnerable minorities”.
Some experts are approaching the new tax with caution. Kris Sims, the B.C director of the Canadian Taxpayers Federation believes that the new measures could be a slippery slope to eventually taxing less expensive homes. She notes that some families may want to pass their homes on to their children or grandchildren who may not be able to afford to pay the taxes on them. In her view, it doesn’t matter how much a home is worth- the homeowner should not be getting a surprise new tax. She also notes that the tax is based on assessed value of a home, not the price it may get when sold.
Other Reactions to the School Tax
Brendon Ogmundson, the deputy chief economist for the BC Real Estate Association notes that the tax will affect less than 3% of homeowners in B.C., and will not have a significant impact on the real estate market.
Ogmundson believes that the tax has been “blown out of proportion”, noting that it would be rare for someone who owns a $3 million plus home is either unable to afford the tax or unable to defer it. He notes:
There’s going to be cases where it might be true, for whatever reason, that there’s a hardship. And the government should look at those cases. But in general, we’re talking about very wealthy households, whether they got there through income or the increase in their home price…
Tom Davidoff, an associate professor of strategy and business economics at UBC’s business school, argues that the tax is so low (relative to the value of the properties it has been imposed on) that its effect will be negligible even after many years of accrual. He notes that it is a smart move in a place like Vancouver where housing is limited and it is challenging to add more due to space restrictions.
Paul Kershaw, founder of Generation Squeeze, an advocacy group for “younger [Canadians] – those in their 20s, 30s, and 40s”, notes that the net wealth in B.C real estate has increased by more than $650 billion over the last 40 years. One third of that large increase has gone directly to residents over 65 and only 5% has benefitted those under 35. While Kershaw understands the concerns of long-term residents, mostly seniors, he believes “it’s a problem that many people would like to have”, noting that:
There are literally hundreds of thousands of younger British Columbians and renters of all ages who would love to see their standard of living shrivel before their eyes in a way that actually nets them more than $5 million, while they were sleeping and raising their kids and watching their televisions and cooking in their kitchens, because that is how this wealth accumulation has unfolded.
Kershaw further notes that even if the real estate bubble bursts and home values drop precipitously many current homeowners will still net several million dollars if they sell.
The news comes in the wake of some analysts predicting that Greater Vancouver’s luxury real estate market is softening.
We will continue to follow developments in this matter and will provide updates as they become available.
In the interim, if you need assistance with personal tax planning, speak to Mark Feigenbaum. We offer customized solutions for each of our clients that streamline compliance requirements and set them up to take advantage of all possible current and future opportunities to reduce their tax burden. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll free at (877) 275-4792.