REFORM OF THE PROPERTY TRANSFER TAX (2007)
In 1987, the government of the day introduced a tax on the purchase of all real estate property in the Province of British Columbia. This tax, titled the Property Transfer Tax (PTT) was based on a tiered system of 1% on the first $200,000 purchase price and 2% on the balance. By way of example, a $400,000 purchase would result in a tax due at the time of closing of $6,000. Specific exemptions were granted to individuals meeting a number of “1st time buyer” criteria, including amount of mortgage against the property, residency and maximum purchase price.
Since its inception, average prices have risen dramatically across the province, in the Greater Vancouver Area alone, the average price for a detached home has risen from $123,800 in 1987 to $641,500 in 2007. It was estimated that in 1987, 95% of homes in the province would be subject to just the first tier of the PTT, thus the purchaser would pay a tax of 1%. Today’s market would see only 10% of homeowners purchasing a property in the first tax tier, resulting in 90% paying an additional 2% on the value in excess of $200,000.
Comparatively speaking, for a $350,000 purchase, our BC resident would pay PTT of $5,000, this same home in Alberta, Saskatchewan or Ontario would yield respective land transfer taxes of $455; $1,050 and $3,725.
Revenue generated from this tax has risen from $140 million in 1987 to $950 million in 2006, with the full proceeds credited to general revenues and not specifically earmarked for uses beneficial to the housing sector.
The provincial government has addressed many changes in valuation through increases in the value of properties exempt for 1st time buyers; in fact, in the most recent 2007 budget, 1st time buyers would be exempt from PTT on purchases up to $375,000 so long as they met the balance of the criteria.
While we acknowledge and appreciate these changes, the tiering of this tax has remained constant since its introduction despite the aforementioned market increases of over 400% in some parts of the province.
This tax has a dramatic impact on buyers in the “move up” market, that is, clients selling one home and purchasing another. This tax forces the client to hold back a percentage of their sale proceeds in order to cover the extra provincial cost on their new purchase. In many situations, this amount causes the client to incur high ratio insurance costs as much as 3.75% of their mortgage amount. In the example of a client purchasing a home for $400,000, they require a downpayment of $100,000 in order to avoid the high ratio insurance. If they have less than this $100,000, they would be forced to pay insurance premiums of as much as $9,000 which is then capitalized onto the loan and paid out over the life of the mortgage, resulting in a total repayment of as much as $27,000. These fees and expenses represent a significant hardship for the move-up buyer; they are responsible for the full 1% of the first $200,000 and 2% on the balance of the purchase price. The move-up buyer is bearing a larger and, consequently, an unfair burden of this tax.
While the complete abolition of this tax would be a significant boost to the homebuyer, it is recognized by The Chamber that the economic hardship that this would cause to the province would be detrimental to the many necessary programs which are funded by this revenue stream. This said, it is concluded that a reconfiguration of this tax structure is long overdue.
THE CHAMBER RECOMMENDS
That the provincial government:
1. amend the PTT to charge 1% of the first $375,000 and 2% on the remaining purchase price;
2. creates legislation linking the 1% and 2% tax tiers directly to the 1st time buyer exemption levels, ensuring that when the exemption is increased, it creates an increase in the threshold for the engagement of the 2% tax tier; and
3. ensure that “move-up buyers” be required to pay PTT only on the difference between the sale price of their property and the purchase price of the property they are buying based on the current threshold values (1% on the first $375,000 and 2% on the remaining purchase price difference).
