Is the NDP's Speculation Tax Half-Baked or Well Done?

BC Speculation Tax - BLOG

What do you have to say about the new

Few of us have much appreciation for creative government schemes that take more of our money.  You've fought hard to buy a second home for work/play/family or as an investment in your future and now the government has devised a clever new way to take a piece of it.  Does it make you feel better to know that they have good intentions?  Or have you been caught in the cross-fire of a bigger battle.

Let's try to spin this into a positive.  Housing affordability in Canada is becoming a big issue, and Vancouver has lead the way with its pronounced share of housing problems.  With the swipe of a pen, Vancouver's problems have become synonymous with problems in Kelowna & West Kelowna, and although it's generally believed that the intentions of the NDP Government must be admirable, the execution of the SPECULATION TAX to this point has been a little "half-baked", (thank you, Vaghn Palmer).  In fact, they've pulled back on much of the initiative, already.  So, what are they trying to accomplish?

Let's be clear that the NDP is not proposing to reach into your wallet if you follow their new rules for tenancy.  You won't have to pay the tax if you own a second home and rent it to someone else.  The overall premise is to get more butts in more seats, as it were... freeing up more rental spaces for people where there is a lack of housing, (for 6 months of the year, anyway).  But it begs the question, "if I own the house, and I'm using the house, then why am I being fined?"  Sorry... "taxed".  

We have a general idea of what a "speculator" looks like, although I'm not certain that everybody with a second home meets the stereotype.  A speculator could be a BC citizen who owns one empty home and rents an apartment, expecting that the value of the home will increase so that he or she can turn a profit.  Although taking up two residences and surely speculating, the NDP would concede that this person is not the problem.  At the other end of the spectrum is the numbered company owning 150 empty residences, and the archetype of property speculators.  Alas, the NDP would argue that any Canadian Citizen owning a second property in BC falls somewhere in the middle of these extremes, which makes you a speculator, too.  Is it reasonable to ask what happened to people who own three houses, or maybe twenty? 

Of course, the government is more concerned with the application of taxes than with your intentions.  Technically, you could lose money on your second home, making you a pretty lousy speculator, however, if your intention wasn't to turn a profit in the first place then you may still feel that you've done pretty well in an ownership sense.  And herein lies the problem with governing by ideology: the NDP's good intentions might sound great, but your intentions will never be considered on a tax return if you incur a financial loss in this example.  So, the government may reap the benefits of its good intentions, but you may not?  It would appear so.  The losses remain yours.  Losses such as the market softening and interest rates going up.  Losses such as not being able to enjoy your second home or cottage, while still having to pay the mortgage and expenses.  Losses or damages incurred from bad tenants.  Losses such as dumping another three hunny, or maybe a thousand a month to the government for the privilege of living in a home that you own.  Perhaps this has simply become another cost of freedom in BC.

I would submit that speculators are people or companies owning many, many homes.  To say nothing of their intentions, they simply have many, many homes and keep them very, very empty.  Perhaps the speculators are out-of-country students, house-wives and "businessmen" owning dozens of high-end condominiums throughout Vancouver?  I cannot say that I would object to greater scrutiny and taxation of these types of home-owners, but I've never been much for ideology.  If you're allowed to own a hundred properties, you can own a hundred properties.  If you're not a Canadian Citizen and the government says you can buy a hundred properties, then you can buy a hundred properties.  I will not tell you what to do with them or how much rent you should charge to make a profit, in the same way that I will not tell you that empty houses leave an awful lot of money on the table that you could be putting into your pockets.  

You see, that's the other side of the spectrum.  I won't tell you what to do with your life and your money, even if your government will.  Perhaps the NDP will soon penalize you for renting to wealthy, foreign tenants instead of poor, local ones?  In light of the fact that most Vancouverites cannot afford to pay ten thousand dollars a month to live downtown, should rents be standardized by the government to make it affordable?  Don't spill your coffee, comrade... we're almost there.  You've simply been lumped in with the rich people paying higher taxes when purchasing a very expensive home or sports car... and we already do that.  Thankfully, if you're actually rich, you probably didn't even notice. 

Which brings us to question whether the speculation tax will be felt by wealthy investors or secondary home-owners at all?  There surely must be many clever ways in which creative people will circumvent big-brother.  Let's ballpark:

  • If I'm not married, can I have one property in my name and one in the name of my significant other? 
  • Can I put a property in the name of my child?  
  • Can I lease my second property to my significant other for zero dollars? 
  • Can my friend from Ontario sign a $1 per month lease and never visit? 

I'm very interested in how this will all play out in the coming months, as the Speculation Tax is an idea that has appeared out of nowhere and seemingly has no foundation.  The definition of a speculator seem to be nothing more than every home-owner with a second home, and I still have a problem with this.  It's questionable whether an additional tax of 0.05 to 2% will encourage anyone to throw empty homes back into the rental pool for the rest of us, even if the NDP thinks that it might.  It's questionable that real speculators will not absorb the 2% hit on their 30% margins to keep the status-quo, even if the NDP thinks they might.  My two-sense thinks that this government initiative just might be "half-baked", unless we're counting cash from a creative tax-grab, in which case I just might have to admit that it's "well done".