by Cameron Muir, BCREA Chief Economist
How would you like to pay your provincial income tax three times this year, just so you can buy a home? Unless you’re a first time buyer, that’s exactly what’s in store for you. BC’s property Transfer Tax (PIT) is payable on the purchase price of all real estate transactions in the province. The tax rate is l% to $200K and 2% on remainder
Government revenues from the PIT will approach $1 billion this fiscal year. In the last 5 years, PIT revenues have doubled. High unit sales and rapidly rising prices have been a financial boon for the government. While overall gov’t tax revenues increased at an annual compound rate of 4.2% since the 1999/2000 fiscal year, PIT revenues ballooned at a rate of 21%. during the same period, the contribution of the PIT to total tax revenue has increased from l.8% to 5.2%, making homebuyers an increasingly important – if not critical – source of revenue.
Much ballyhoo has been exerted promoting BC as having one of the most competitive personal tax regimes in the country. Indeed, the province has the lowest tax rate in Canada for a working couple earning $40,000 a piece. The merits of higher or lower taxes will forever be a topic of public debate but, supposing lower taxes are better, BC is certainly on top of its game or is it?
So it shouldn’t be a surprise that potential British Columbians assess both the advantages and the pitfalls of “the best place on earth”. Alberta seems to have no trouble attracting eight times as many inter-provincial migrants as BC’s water, trees and mountains do. In fact, real estate sticker shock is commonplace for migrants arriving in BC’s large cities. BC’s nation-leading home prices certainly have the potential to sour the cream that is low personal tax rates.
And then there’s the PIT. BC may have the most competitive personal tax regime in the country, but it also has the dubious distinction of the least competitive real estate transfer tax. In fact, if that couple earning $40,000 apiece bought a home priced at the provincial average, their combined income tax and PIT would equal three income tax returns instead of one. Now, suppose they moved every 5 years, as many households do: their total combined tax burden would average 40% higher each year than their personal income taxes alone. This scenario would make BC far less attractive from a tax perspective than either Alberta or Ontario.