Written on behalf of Feigenbaum Consulting
Recently, the British Columbia Court of Appeal ruled that amendments made to B.C.’s tax laws imposing additional tax on foreign national residential property buyers was constitutional after it was challenged in court by one such buyer.
Foreign National Buys Residential Property in B.C.
The property buyer was a Chinese citizen who moved to Canada in 2011 and to B.C. in June 2016. She held a valid work permit but was not a permanent resident of Canada.
On July 13, 2016, she purchased a residential property in Langley, B.C., with a closing date of November 14, 2016. She was required to pay an additional 15% property transfer tax when she completed the sale and registered the transfer of the property.
Legislative Scheme Applicable to the Foreign National Buyers
In fact, the buyer was required to pay a 15% property transfer tax under B.C.’s Property Transfer Tax Act (“PTTA”).
This was because, under the PTTA, a purchaser of real property in the province was required to pay a transfer tax when registering the transaction at the land title office, unless eligible for an exemption. The tax was calculated at rates of 1–5% of the fair market value of the property: 1% on the first $200,000, 2% on the value over $200,000 up to $2,000,000, 3% on the value over $2,000,000, and 5% on the value over $3,000,000.
Then, as a result of the housing affordability problem in Greater Vancouver (“GVRD”), the B.C. government enacted several housing measures, including amendments to the PTTA, in 2016. Those amendments required the payment of an additional 15% tax on the transfer of residential property in Greater Vancouver where the purchaser is a “foreign entity” or “foreign national”, a “taxable trustee” or both. A “foreign national” was defined as a person who is not a Canadian citizen or permanent resident of Canada.
Subsequently, in 2017, amendments were made to the related Property Transfer Tax Regulation to exempt or refund foreign nationals who were close to obtaining permanent resident status and who lived or intended to live in the property.
In 2018, the tax rate was increased to 20% and expanded to include four additional regional districts.
Buyer Commences Constitutional Challenge to Tax Law
The buyer commenced a court action challenging the foreign buyer’s tax on the basis that it was ultra vires the province, inoperative under the federal paramountcy doctrine, and unjustifiably infringed her rights under s. 15 of the Canadian Charter of Rights and Freedoms (the “Charter”).
Her action was dismissed in the court below after a 21-day summary trial.
The buyer appealed the decision to the B.C. Court of Appeal, contending that the trial judge erred in his legal analysis on the issues.
Court of Appeal Describes Context of Amended Legislation
The court began by making several observations relating to the context in which the B.C. government had come to introduce the relevant amendments, stating:
“There is no dispute that housing affordability has been a problem in Greater Vancouver (the GVRD) for some time. It had reached a critical level by June 2016, when prices of residential property had increased significantly from the previous 12 months—almost 40% for single-family homes and just over 30% for condominiums. As of July 2016, the average price for a single-family home was about $1.2 million. The growth of incomes has not matched these increases. …
It is important to note that the foreign buyers tax applies to only one segment of the real estate market—residential property—and only in areas where foreign demand has been shown to contribute to rising prices. It also applies only to individuals with no permanent or imminently permanent status in Canada or entities without ties to Canada. Foreign nationals who do not wish to pay the additional tax remain free to purchase non-residential property or residential property in areas unaffected by the tax.”
Court Rules That Tax Legislation is Constitutional
Ultimately, the Court of Appeal ruled that the PTTA and its amendments as they related to foreign nationals were constitutional on three bases.
First, the court held that the amendments were not ultra vires because their dominant purpose was to address housing affordability which fell under the province’s jurisdiction relating to property and civil rights.
Additionally, the court held that the legislation was not inoperable under the federal paramountcy doctrine, ruling that there was no conflict with federal legislation.
Finally, the court addressed the buyer’s claims of discrimination under the Charter, stating:
“There is no question that the history of this province includes some shameful discriminatory laws and attitudes towards Asian and Chinese people, and prejudicial attitudes still exist.
That said, the current social context in which the tax provisions were enacted is very different from the discriminatory laws of the past, some of which were aimed at discouraging immigration from Asian countries. The evidence shows that the public discourse surrounding the tax, and the discussions within government, were largely focused on the extent of foreign ownership and its effect on housing affordability for residents. The concerns were confirmed by the expert evidence that showed overall foreign demand to have been one of multiple factors contributing to the escalation of the price of housing in the GVRD at the relevant time. I agree with the Province that the evidence does not support the contention that the tax was predicated on anti-Chinese prejudice. It does not send a message that Asian or Chinese people are unwelcome to immigrate. Those who do will not be subject to the tax if they purchase a home in the GVRD (or the other specified areas) once their immigration status is permanent or close to permanent.”
Despite the concerns raised, the court held that the buyer had not established that the tax provisions created a distinction, direct or indirect, based on either citizenship or national origin and thus dismissed her Charter argument.
As a result, the buyer’s appeal was dismissed.
Mark Feigenbaum brings together many years of litigation experience with a deep knowledge of tax law, corporate law, accounting, finance, and other related practice areas. Mark can help you avoid the biggest risks that may arise in tax disputes.
Prior to founding his law firm, Mark worked in the cross-border tax department of an international Big 4 firm, and held accounting management positions across a variety of sectors in both Canada and the United States.
With tax legislation in constant flux on both sides of the border, Mark takes great care to stay current on all relevant developments in law and policy. He carefully considers all solutions available to craft a response that proactively considers the policies and best practices of a given tax authority.
If you are involved in a tax dispute or related litigation, contact Mark Feigenbaum for exceptional representation and guidance. Mark’s many years of interdisciplinary knowledge in law, tax, accounting, and finance and significant cross-border experience make him uniquely positioned to assist you. Mark offers services to clients in the U.S., Canada and around the world. Contact Mark online or call him at (905) 695-1269 or toll-free at (877) 275-4792 to book a consultation.