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Is it time to retire the property transfer tax?

KATHERINE DEDYNA / TIMES COLONIST 
JANUARY 13, 2013

Is it good public policy to continue the property transfer tax in its current form after 25 years and $12 billion?

Jim Bennett, government relations co-ordinator for the Victoria Real Estate Board, says no. “It never was good public policy to single out a specific category of citizen [home purchasers] and put this burden on their shoulders.”

How would the province replace the money — estimated at $800 million for 2012-13 — considering this year’s deficit is forecast at $1.47 billion?

“It is up to the provincial government to cover the shortfall in other ways,” said Paul Gerrard, chairman of the Capital Region Housing Trust Fund Commission, who suggested applying the tax only to the first change of purchase on a finished building. “This would cut costs to the construction industry, as well as making housing more affordable on subsequent sales of a property by only applying the PTT once. Either that, or at least drastically reduce the percentage charged on the PTT.

Gerrard said the tax continues to add to the cost of housing by levying the tax on every transaction, from bare land to the builder, then on every subsequent purchase of that property.

Jordan Bateman, B.C. director of the Canadian Taxpayers Federation explains: “A holding company buys a property from a little old lady. They pay the tax. Then the company flips it to a developer. They pay the tax again. Then it goes to a builder, they pay it again. Then it finally gets to the family who purchases the new home, and they pay it again. The cost of that new home has been inflated by tens of thousands of dollars.”

Darren Kitchen, director of government relations for the Co-operative Housing Federation of British Columbia, said one problem with the tax in its current form is that it is a major barrier to co-ops putting their land in the Community Housing Land Trust Foundation. “The Foundation is a charity whose only purpose is to protect the non-profit use of the land in perpetuity. There’s no problem with co-ops [or non-profits] putting their land in — six have done so — but the lease-back to the co-op attracts the PTT in tens or hundreds of thousands of dollars, so most co-ops won’t do it.

“This is a lose-lose scenario, as the government gets neither the revenue from the tax nor the protection of the long-term non-profit status. Perhaps lease-backs from the Foundation should be exempt?”

Other suggestions:

>> The B.C. Chamber of Commerce would ultimately like the property transfer tax to be abolished. “However, we recognize that budget realities make calling for the elimination of the PTT irresponsible,” said chamber spokesman Jon Garson. To provide “modest relief to homebuyers,” it suggests the one per cent threshold be boosted from $200,000 to $525,000. The $200,000 threshold is unchanged since 1987. Net savings would be roughly $3,000 for an average house in Greater Victoria.

The chamber also advocates that one per cent threshold of $525,000 be indexed using Statistics Canada’s new housing price, and annual adjustments made.

“We also contend that this kind of change is particularly important given the current state of the housing market,” Garson said, with MLS sales down 17 per cent from November 2011.

“Any measure which could stimulate interest in the market would be welcome and the provincial government has very few levers in this regard — PTT is one of the few things the province can do to help the market.”

>> “In terms of election issues, the broader question for local governments is which of the provincial parties would sit down with the Union of B.C. Municipalities to take a look at revenue sources in general,” said Mary Sjostrum, president of the Union of B.C. Municipalities. “The revenue tools for local governments have not changed in generations, but the range of services we provide has increased significantly. Funding for these services also relies too much on property taxation. In our view, it is not good policy, so there is a need to look at other options. Transfers from other levels of government — such as a portion of the property transfer tax — should be a part of that conversation.”

>> “The revenues lost from either reforming or abolishing the PTT could be derived in a variety of ways that would be superior to the present tax,” said J. Rhys Kesselman, professor in the school of public policy at Simon Fraser University. “Some possible options might include: a) impose an annual surtax at progressive rates on mid- to upper-valued residential properties; b) impose an annual property tax on passenger vehicles at progressive rates; c) eliminate the homeowner’s grant and replace it with a refundable tax credit for lower-income renters and homeowners, with the cost savings used to replace part of the revenue lost from reforming the PTT [the homeowner’s grant is currently provided irrespective of the recipient’s income, although it is phased out for the highest-valued properties].

“Two changes would be useful, and each of them would reduce the revenue yield of the tax: a) raise the threshold for the higher, two per cent rate of PTT to $400,000 from the current $200,000, where it has been held unchanged for many years; and b) provide each B.C. home purchaser a credit against PTT for all B.C. PTT paid by that purchaser in previous years, so that only new B.C. residents and longer-term residents who are ‘;moving up’ in their home value would bear the tax.”

>> “The best thing about the PTT is that it is fairer than a sales tax, which tends to be regressive because low income and high income earners pay the same tax on items they buy, but low income people spend a greater share of their income on the items,” said Charles Krusekopf, associate professor at Royal Roads School of Business. “The property tax is higher for higher-value homes, and therefore it is paid primarily by higher-income people.”

© Copyright 2013

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