Like it or not, Vancouver’s new real estate tax measures are now in effect—fewer than 10 days after they were unveiled by B.C.’s Ministry of Finance.

The government has introduced an additional 15% property transfer tax on foreign nationals, corporations and trusts that are buying in Metro Vancouver. The new tax adds $300,000 to the final purchase price of a home worth $2 million, for instance (see “Details of the new tax”, below).

The province’s new tax measures, which also include a potential vacancy tax for the city of Vancouver, aim to address the lack of rental supply and housing affordability – which officials attribute in part to foreign investment.

Based on data that the B.C. government started releasing in early July, officials say foreign nationals invested more than $1 billion into B.C. property between June 10 and July 14, with more than 86% of that in the Lower Mainland.

Industry reaction

It’s unusual to enact tax measures in such a short time without seeking further commentary, says Michelle Connolly, vice-president of Tax, Retirement and Estate Planning at CI Investments in Toronto. “It’s very fast, so there’s the question of who it’s going to impact. For example, you might have a person in Vancouver who entered into a sales agreement for their house six weeks ago, with an eight-week close. If it was [with] a foreign national, [that means] a $2.5-million house is now costing a lot more—that’s an additional $375,000 added to the purchase price.”

As a result, “They could walk away. And if the seller has already negotiated the purchase of another house, that puts them in a bind. When you look at this from that angle, it definitely is having a short-term impact. [Based on conversations with colleagues], I know viewings are being cancelled for houses on the market. But that’s all limited to the Metro area.”

But the bigger question, she adds, is whether the nationals who were previously looking at Vancouver will now turn to other cities like Toronto and Calgary. In that sense, she says, “Are we stopping foreign investment? Maybe not.”

Connolly also points out that for large investments, such as a $25-million home, “those foreign buyers probably don’t really care about the additional 15% expense.”

Michael Pereira, tax expert and partner at KPMG in Toronto, says to consider that “the U.K. has passed similar legislation to slow down foreign ownership and alleviate price pressure in London. But the London housing market has continued to go up.” In fact, reports The Globe and Mail, Asian buyers’ interest in U.K. real estate rose after the Brexit vote.

Copycat effect?

There have been hints that the new tax could extend to regions outside Metro Vancouver. The B.C. Ministry of Finance left the door open in a release, saying, “Government can prescribe in regulation other areas where the additional tax would apply. The Province continues to monitor data on foreign investment and foreign ownership in B.C.’s real estate market.”

And many are wondering whether Ontario will also look at additional taxes. Last week, Charles Sousa, Ontario’s finance minister, welcomed B.C.’s move and promised to monitor the situation.

The federal Minister of Finance is toeing the same line: when asked via email whether the new tax could apply elsewhere, a spokesperson said, “Last month, we announced the creation of a working group of officials from the Government of Canada, the Province of Ontario, the Province of British Columbia, and the cities of Vancouver and Toronto. We continue to closely monitor the situation and work collaboratively.”

As of June 2016, the price for single-family detached homes in the City of Toronto was up 17.05% year-over-year, and there’s lack of supply of low-rise housing in the city. In Vancouver, house prices in the area have risen 24.6% compared to this time last year, while nationwide prices grew 9.2% year-over-year, according to Royal LePage data.

Read: Don’t compare booms in Toronto, Vancouver real estate

What about U.S. persons?

Anyone who isn’t a permanent resident of Canada is a foreign national, and thus subject to the new rule. That includes Americans.

Any U.S. persons who are Canadian residents for tax purposes won’t be affected, but “there are a lot of people here on work visas who [may want] to acquire property [since they’re] here for four to five years on a work assignment,” says Pereira. “It seems counter-intuitive to impose this tax [on] people who are contributing to the local economy, so it seems the B.C. government needs to narrow who this law is meant for.”

But the number of U.S. persons captured will be minimal, says Connolly. “If a person wants to come here, bring their family and buy, then there’s going to be a purgatory period where they’ll have to rent. They’ll just have to […] wait. Also, the question is how many U.S. individuals are going to want to buy in the Metro Vancouver area? We’re not talking Whistler or vacation properties up the Sunshine Coast. […] And you have to think about the U.S. reporting obligations on foreign property, which are pretty onerous.”

Details of the new transfer tax

On July 25, 2016, the B.C. government introduced Bill 28, Miscellaneous Statutes (Housing Priority Initiatives) Amendment Act, 2016.

Mainly, the bill amended the Property Transfer Tax Act to include an additional 15% transfer tax on foreign entities buying property in Metro Vancouver. Such buyers will now pay this tax on the residential component of the foreign interest. (The tax doesn’t apply within the treaty lands of the Tsawwassen First Nation.)

The B.C. government says, “Audit measures that are already in place for the property transfer tax will be extended to encompass [this] additional tax. [More] auditors will be required.” Going forward, these are the changes that apply.

1. The government has six years for audit and enforcement of the additional 15% tax.

2. The property transfer tax return form will require a Social Insurance Number from all transferees who are Canadian Citizens or permanent residents. Invalid social insurance numbers or other discrepancies will lead to an audit and investigation. “The government has [added this requirement] to help cut down on [the time it takes to] identify who’s a foreign national,” says Michelle Connolly of CI, but she points out CRA could use this information to “see how many times these SINs come up, and they [could] target flipping where [people are] regularly buying and selling.”

3. Fines payable as a result of offences with respect to the additional tax are the amount of unpaid tax, with interest, plus up to $200,000 for corporations and $100,000 for individuals. The maximum liability for imprisonment, two years, remains unchanged.

Taxes on foreign buyers across the globe

B.C. isn’t the first to impose additional rules on foreign real estate buyers. Here are some examples.

  • In Australia, the Foreign Investment Review Board requires international buyers to apply for permission to purchase or build new houses.
  • Britain recently extended a real estate capital gains tax to include foreigners. The tax, which can be as high as 28%, applies when people sell houses that are not their full-time residence.
  • In Hong Kong, foreigners must pay a 15% buyer’s stamp duty on all purchases or transfers of residential property.