I have asked this question quietly to myself more than once over the years.
***For a post on the nuts & bolts of the new BC 15% foreign tax legislation click here – this post is specifically about the unbelievable way in which we are implementing it.
A few points about me, for perspective:
- I am second generation Canadian.
- I speak just one language.
- In my work as a Dominion Lending Centres mortgage professional, I do not work with foreign buyers (although I have had conversations with a few over the last few weeks).
- I am married to a woman born in the UK whose parents immigrated to Canada 43 years ago.
So, what does it mean to be Canadian?
Most recently I ask this question as witness to a growing tide of anger and resentment fueled by anecdotal and hyperbolic Vancouver real estate stories. Stories that all too often cast one particular group of people in a negative light. Stories of questionable studies based solely on people’s birth-names. Inaccurate tales of $31M student-owned mansions, and $51.8M estates purchased by a ‘former duck farmer’.
Seriously, are such stories relevant to our lives?
How many of us were in the market for a $30M mansion? Does it matter what a millionaire today did decades ago for a living? What has any of that got to do with the price of tea in… anyways.
The average sale price of 80% of homes in the Greater Vancouver Regional District (GVRD) has been $597,000.00 this year. There are more than 100,000 sales per year in BC, and we focus on a handful… as if they explain what drove prices of detached homes in Chilliwack up by ~50% in just over a year.
Such stories have left readers and residents alike under the (false) impression that 95% of foreign money is dirty money, 95% of foreign buyers are criminals, and 66% of all real estate sales in Vancouver are to these damn crooked foreign buyers with their dirty money. And with the majority of ‘exciting’ real estate stories focused on a specific group of ‘foreign buyers’, is it any wonder that when we hear the words…
- foreign buyer
- dirty money
- money launderer
- bidding war
… we can think of one nationality alone.
(I have not even used the word, but you have thought it ten times over already haven’t you?)
Well, we have been suckered, played, used. That’s what.
Media stories have inadvertently, in a quest for clicks, shares, and eyeballs, created a pressure cooker which primed the government to act, or overreact, triggering knee-jerk legislation with little evidence of forethought or industry consultation. And so we have a new Foreign Buyer Property Transfer Tax. In itself this is less of an issue, but what is staggering is the decision to implement this tax on binding contracts due to complete following August 2nd – even though they were entered into, in good faith, weeks, months, or even years ago .
This is the heart of the issue: not the tax itself, but the way it is being brought in.
We will talk another day about the validity of the tax itself, whether it is too high or too low, along with the (non) impact it will have on house prices.
Today let’s focus on one key point, a point that has me struggling with how our government has portrayed us as Canadians on the world stage.
The point that should truly blow your mind and have you questioning the accuracy of this post is, in a word:
The retroactive caveat in this legislation is an offence to all that it means to me to be Canadian. This poison pill flies in the face of good-faith dealings, besmirching the closely held value that our word is our bond.
What am I talking about?
Suppose you got off a plane from Los Angeles, Rio, London, or wherever, just three months ago to open a new division of your employer’s company and you fell in love with Vancouver, as so many do. You thought, ‘Wow, this market is moving fast. I am going to buy. Even though your Permanent Resident status has not yet been approved, the application is in the works and there is no reason not to buy. After all, you are young, educated, and healthy – just what Canada looks for in new immigrants. Perhaps you’re not wealthy, but you have managed to amass some savings, and being skilled and in demand locally, you will soon be on your way to becoming Canadian.
So, on the weekend of July 16th you write an offer. Over the following week the Canadian bank approves your mortgage and on July 22nd you remove conditions and go firm on your offer. You are now in a binding contract to purchase and have handed over a significant deposit – nearly all of your life’s savings in fact.
Things are moving fast as the purchase completes August 3rd.
On July 25th you get a panicked call from the law firm handling your purchase. A new tax has been announced and you need to come up with an extra $90,000.00 in nine days. The price just went up. Up how, you wonder?!?!!
You pause. Are you in the fourth dimension? Are you in some third-world banana republic? ‘Repeat that a second time’, you say.
‘A 15% provincial tax is now due on your purchase’.
A tax that did not exist the day before.
‘OK, and if I cannot pay this amount?’ you ask
You forfeit your deposit. A deposit of how much? $30,000.00 – $120,000.00 depending upon how the contract was negotiated.
You are stuck between a rock and hard place.
Kind of like Mac Kerman is.
Is this the foreign buyer you thought was being hit with this tax?
Was this the image you had in mind of a foreign buyer?
Or Mr. Howard Dresner, another painful story of a fellow purchasing a $568,000.00 townhouse
How about Mr. Dresner, does he fit the profile built up in many of our minds of what a foreign buyer is?
Or Mr. Hamed Ahmadi, a local tax paying resident, with his life savings on the line due to a $54,000 tax on his $360,000 condo purchase.
29 years old, without the savings for an unexpected and unprecedented tax.
Aren’t all foreign buyers absentee multimillionaires based in…? (You did it again didn’t you?)
The thing about a retroactive tax is that a multimillionaire can afford either to pay it, or more significantly, to walk away from their contract and deposit and simply not complete – leaving the local Canadian seller in a bit of a jam to say the least. Watch for these stories over the coming weeks.
But you did not know that foreign buyers are often people you work with, or work for, play hockey with, people who look like you, talk like you, and in fact have applications in for permanent resident status because they also love Canada – just like you.
The Mac Kermans in this situation, along with any Mexican nationals, may have some luck as there is the suggestion that this Property Transfer Tax contravenes NAFTA.
What about the people being crushed by this tax who are living here, working here, and paying Canadian income tax? Their crime in all of this? Simply waiting for the painfully slow process of Permanent Resident status approval. These are people just like you and me, or like our parents or our grandparents (many of whom bought homes prior to having citizenship or PR cards themselves). These folks are buying $300,000 to $600,000 properties. In many cases having a random charge of $45,000-$90,000 stacked without warning onto the previously agreed-upon price will ruin them. It is simply not something they can deal with. Could you, your parents, or grandparents have? Could your siblings? Your children?
I Am Canadian
Aside from the very real personal impact this is having on our fellow about-to-be-Canadians,perhaps most important of all, we seem to be overlooking the negative impact such underhanded dealings have on our reputation internationally as Canadians.
To me, being Canadian means being fair in all dealings, both personal and professional.
Maybe I watched too many Clint Eastwood or John Wayne films growing up, but my word is my bond and my handshake means as much as any contract. And speaking of contracts… is Canada not a country with a stable government that operates under the rule of law, in which citizens have rights? Should that same protection not be extended to those who enter into contracts with us?
All bets are off
As it stands now, with this tax being levied on unsuspecting buyers, if one enters into an agreement with a Canadian – be it verbal, handshake, or formal contract negotiated in good faith – it is simply not worth the paper it is printed on.
We as individuals tend to honour our end of a bargain under any and all circumstances. Indeed, on a personal level we behave with honour far more often than not. Yet in this instance, if this legislation stands, we are allowing our provincial government to act dishonourably on our behalf and allowing them to make us all, as Canadians, appear untrustworthy.
Precedent & Uncertainty
Just what sort of precedent might this set? The Mayor of Toronto seems on side with pulling a similar move.
Hearing such sentiments, would you as a foreign buyer enter into a binding purchase agreement anywhere in Canada at this point?
Would you risk a tax being imposed on your binding contract due to little more than a political whim? A tax that you might not have the funds to meet. After all, it was 15% this time; perhaps in Toronto it will be 50%. Perhaps in BC it will be 55% next week, 32% the week after, who knows? There is no longer any certainty in dealing with us.
This method of implementation creates doubts and serious instability in dealing with Canadians.
The Bigger Picture
On a larger scale, this should spur second thoughts for any foreign entity considering entering into any agreement or contract in any and all financial sectors anywhere in Canada. After this, how can we be trusted?
A message is being sent loud and clear: You may think you have a deal with us, but we are Canadian and Canadians change the terms of their deals with no notice, no compensation, no consideration, and no thought as to the long term damage to our national reputation.
You think this is just about Vancouver real estate? Were I an American, a European, or anything but a Canadian myself, I would have to think twice about doing any sort of business with Canadians moving forward.
I am Canadian.
I am embarrassed to be.
Let’s fix this!
If our government does not fix this mistake in time – and there is still time – then they should expect a massive class-action lawsuit, countervailing tariffs from other countries, at the least some sort of reaction from our trading partners.
Some of us might be thinking ‘Yeah, we really stuck it to those multimillionaires from that one country’. However, by failing to apply the tax to new purchase contracts only, or perhaps phasing it in over one year, or even 90 days… by hammering on people already locked into agreements… we are sticking it to ourselves in ways we have not yet imagined.
No doubt the 90% of the 737 people polled who approve of this tax don’t realize that it is being forced on people who are already in firm contracts and cannot magically complete their purchase within one week. People who are not multimillionaires. People from the USA, Europe, and South America. People living and working and paying taxes here right now.
Conveniently, in their announcement of the tax the government used the example of $300,000.00 tax amount on a $2M home to illustrate the math, again fueling those same images in your mind. Images of multimillionaires.
Again we were all played.
Cooler heads may oppose the tax itself by accurately pointing out that while it is a cash-grab for the government, that is all it is. This legislation has no teeth around the flow of ‘dirty money’, other than perhaps increasing the flow of said money by 15%. And in a market where $2M homes shot up to $3M in less than a year, is the new price of $3.45M really a showstopper for many of these buyers? Time will tell.
But how do you think the buyers in the $500,000 price bracket are dealing with a $75,000.00 bill that was not part of their original agreement to purchase?
There will be fallout from this, not just for ‘foreign buyers’ but for many Canadians.
The value of real estate in Vancouver? Unlikely to be a casualty at all; it is exceedingly resilient.
The damage will be 99% collateral, failing to hit the intended target.
Courtesy of Dustan Woodhouse, AMP – DLC Canadian Mortgage Experts