The owners of Greater Vancouver’s expensive homes tend to pay a “tiny” amount of income taxes relative to their wealth, according to a new study by University of B.C. specialists in business and planning.
The owners of Vancouver-area homes with a median value of $3.7 million pay income taxes of just $15,800 — the lowest correlation of property values to income tax contributions of any North American city, concludes the analysis by UBC’s Tom Davidoff, Paul Boniface Akaabre and Craig Jones.
The authors suggest it could be “politically popular” to impose a minimum income tax on the owners of the most pricey homes in Canada. In Greater Vancouver alone, they calculate, a minimum surcharge would bring in $3 billion annually in income taxes. The payoff from Greater Toronto would be at least $2 billion.
The UBC report, titled The prevalence of low income-tax payments among owners of expensive homes in Vancouver and Toronto, states that, “Most luxury homes in Greater Vancouver appear to be purchased with wealth derived from sources other than earnings taxed in Canada.”
Their research builds on peer-reviewed work by former Simon Fraser University prof. Josh Gordon, who found that home prices in Metro Vancouver began “decoupling” from local incomes between 2011 and 2016, in part due to increasing foreign ownership. Gordon’s findings, along with those by Rhys Kesselmen and the late real-estate analyst Richard Wozny, encouraged the B.C. NDP to bring in the speculation and vacancy tax.
“Canadian governments have revealed through their policy choices a preference that homes be occupied by Canadian taxpayers,” according to the UBC report. “B.C.’s speculation and vacancy and foreign buyer taxes punish homeowners who are neither landlords nor regular residents, and the speculation tax also targets homeowners who earn most of their income outside of Canada.”
In an interview, Davidoff said, “It is not clear to me that the source of untaxed wealth matters much. … (But) as we cannot rule out outside-of-Canada wealth as a source of our peculiar tax-paid/property value relationship, I suppose to the extent this would be an important question for tax authorities, there is more that could be done prior to implementation. With more access to confidential data, perhaps students and investor immigrants could be compared to the larger pool” of owners of costly properties.
The study, which is to be published in The Canadian Tax Journal, refrains from recommending a specific tax rate. But the authors calculate, based on the “reasonable, if arbitrary” idea that if one per cent of a property’s assessed value was paid in income taxes, it would mean inhabitants of a $4-million home would need to pay a minimum $40,000 a year to the Canada Revenue Agency.
The authors concluded, based on their study of 2016 census data, that the majority of super-expensive homes are not owned by retired people who were lucky enough to buy early and just watch the value of their house grow over the decades.
The researchers employed methods to determine whether “Vancouver’s odd pattern of income in property value can be explained by the presence of long-time owners who were able to buy in at low prices with modest incomes. The answer to that question is clearly, ‘No.’” Regardless, the paper recommends giving many retired homeowners an exemption from its suggested tax.
A portion of Vancouver mansion owners, such as B.C.-based billionaire Chip Wilson, founder of Lululemon, would likely “pay incredibly high” income taxes in Canada, Davidoff said. But, based on median values, Canadian Housing Statistics Program data from 2018 showed the largest cohort of high-end owners do not pay significant income tax.
Davidoff, a business professor at UBC, Akaabre, a PhD candidate in UBC planning, and Jones, associate director of UBC law school’s Housing Research Collaborative, worked closely with Statistics Canada staff members Wendy Kei, Josh Gordon, Jean-Phillippe Deschamps-Laporte, Haig McCarrel and others to produce the study.
Officials at the Urban Development Institute Pacific Region declined comment. The Real Estate Board of Greater Vancouver and the Canadian Homebuilders Association of B.C. could not be reached.
The aim of the UBC researchers in their paper is to support the Canadian tradition of “progressive” taxation, which redistributes money from well-off to low-income people, while also recognizing that a person’s wealth is often best measured by their real-estate property.
“It is a very old idea that property values are more accurate signals of lifetime resources than fluctuating declared annual incomes,” states the study. “Using income as the sole basis for taxes may be undesirable due to tax evasion, legal but possibly socially undesirable avoidance, or inter-generational and international transfers not subject to taxation.”
Metro Vancouver’s most expensive homes are in West Vancouver and the West Side of Vancouver, Davidoff said, adding that Greater Vancouver “is at significant risk of becoming a playground for the rich.”
Along with B.C.’s natural beauty, temperate climate and generous taxpayer services, the business professor said Canadian jurisdictions traditionally demand low levels of property taxes. So the message to the wealthy, he said, is: “’Come here and buy a home and we’re not going to charge you very much. But, if you want to make a living here, then we’re going to really nail you with income and sales taxes.’ (Vancouver) attracts affluent people who are kind of done with working and want to chill — and Canada has a tax code that encourages it.’