Government Plans Foreign Buyers Tax in Bid to Create Affordable Housing for Canadians

The Liberal government has said it will take steps over the next year to tax foreign homeowners living outside of Canada as part of its plan to lower housing prices across the country

It’s been an idea that has grown in popularity over the past few years in provinces such as British Columbia, Ontario and Prince Edward Island, but some experts have questioned how effective the plan is.

In a financial update released this week, the government said the plan will benefit first-time homebuyers and bring more homes to the market by taxing homeowners who use Canada to passively store wealth in housing and other property.

Prime Minister Justin Trudeau said last year his government intended to introduce such a tax while praising the same measure in British Columbia.

The B.C. government said last year its speculation and vacancy tax raised $115 million, paid mostly by owners based abroad, with Finance Minister Carole James crediting the tax as a factor behind the 5.6 percent fall in home prices in the first part of 2019.

Tsur Somerville, an associate professor at the Sauder School of Business at the University of British Columbia, said that while prices did fall in the Vancouver area after the introduction of foreign buyers’ taxes, the policy is not a silver bullet for affordability.

“If you’re looking to address affordability, that on its own is never going to get you to affordability. But it can certainly be part of the package of both demand- and supply-side policies,” he said.

In addition to the speculation and vacancy tax — on those who own local residences but do not pay provincial income taxes — B.C. has also tried a property transfer tax on home purchases made by foreign nationals in Vancouver, according to the Chartered Professional Accountants regulator of British Columbia.

In 2017, Ontario passed speculation tax and vacancy tax on homebuyers in Greater Golden Horseshoe, non-citizens as well as permanent residents. And at PEI, nonresidents have to apply to buy more than 5 acres of land.

“I can’t understand why the government introduced this tax collection law at the national level,” said Sommerville. “It is not a sensible policy given the fact that we are not in a national crisis of foreigners buying homes in every market and creating affordability challenges.

Somerville also notes that this policy has provoked an outcry by targeting the Chinese in Vancouver, even though different population groups will be affected in different parts of the country.

Andrey Pavlov, a finance professor at Simon Fraser University’s Beedie School of Business, said nationalizing British Columbia’s policies was a “terrible” idea and said the tax was not just discouraging. Foreign investment but also does not improve people’s ability to pay.

The additional property tax, Pavlov said, could reduce supply as builders and investors are discouraged from building more. Pavlov also questioned whether the policy would help the government pay for its fiscal stimulus plans.

“Our chance to pay off our debt now is to grow the economy as quickly as possible,” said Pavlov.

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