Soon after the province announced a new 15 per cent tax on real estate purchases by foreign buyers, critics were quick to point out the simple, and sometimes dubious, ways foreigners can avoid the extra surcharge.
Playing the market through purchasing pre-sale condos is one such way, according to NDP housing critic David Eby, MLA for Vancouver-Point Grey.
Pre-sale condominiums are sold often years before the building is built, and properties like these are not registered into the land title registry until doors open and the building is completed. Like the property transfer tax, the new foreign buyer tax is only applicable to properties in the land title registry.
Meaning, foreign buyers would not need to pay the 15 per cent tax on pre-sale condos.
The exact wording of the legislation states:
“On application at a land title office for registration of a taxable transaction to which this subsection applies, the transferee (buyer) must … pay tax to the government.”
Eby says the issue is buyers do not apply to register a pre-sale condo contract at the land title office.
He adds that this isn’t the only loophole that is concerning to the opposition government, and is something he will bring up during Question Period in the Legislature on Tuesday.
“There’s also the loophole you could drive a truck through, which is that as a Canadian I could set up a company and buy a bunch of houses with 100 per cent foreign capital in my company,” Eby told Global BC.
“So I could have a bunch of investors from wherever and I could buy a bunch of houses with it and no one could say anything about it.”
Eby likens it to the assignment clause loophole that realtors recently used to avoid property transfer taxes through “shadow flipping.”
According to the website of Mike Stewart, a prominent realtor dealing with pre-sale condos, there are roughly 110 condo buildings currently in pre-sale stage in Vancouver.
Data released by the province in early July found self-reported foreign buyers purchased a total of five per cent of Metro Vancouver homes, including condos, in a 19-day period from June 10 to June 29, 2016.
Updated figures are expected to be released Tuesday morning.
UPDATE: The B.C. Ministry of Finance has released a statement refuting these claims from the opposition:
There is no loophole—the additional tax on foreign buyers will apply for purchases of pre-sale condos when the foreign buyer registers their name on title with the Land Titles Office. Whether the buyers pays partial installments before construction is completed or all at once when the contract closes – the tax is payable if a foreign owner is making a purchase.
Most developers have contractual provisions that address the option to assign a contract to another party, typically requiring the developers consent and in some cases a portion of any gain in value the property may have experienced.
In the event a foreign buyer does assign a contract, federal withholding tax will apply.
As with any new tax, there will be attempts to plan around or circumvent it. We are prepared to take further action if we see abusive avoidance transactions occurring.