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Bill 2: Budget Measures Implementation Act, 2018

Yesterday in the BC Legislature we debated Bill 2: Budget Measures Implementation Act, 2018 at second reading. This bill amends 21 other pieces of legislation in order to implement a number of the tax measures proposed in the BC Government’s budget.

As you will see in the text and video of my second reading speech, I was generally supportive of the measures included in this bill. Nevertheless, I was critical (for reasons that I expand upon in detail in my speech) of the government not exempting zero-emission vehicles from the increase in PST that will now be applied to automobiles over $125,000.

I was also critical of government not closing the bare trust loophole that I’ve been pointing out for more than four years now is being used to avoid paying property transfer tax. In my speech I provide details as to how someone can simply avoid paying the proposed increase in property transfer tax on homes sold for over $3 million.

Below I reproduce the text and video of my speech.

Text Speech

A. Weaver: It gives me great pleasure to rise and speak, join debates here at second reading discussion of Bill 2, Budget Measures Implementation Act, 2018. As we’ve heard from members opposite and government, this bill is being brought forward to enact some of the measures that government is proposing to do.

I’ve heard a lot in the debate so far, discussions about the budget in general. We must recall that in fact, this bill is only dealing with a few aspects of what is actually contained in the budget. The speculation tax, which we’ll clearly be debating at some point, is not contained in the budget implementation act, but something that is contained that I haven’t heard a lot about is changes to the school tax, which we’ll discuss in a second.

Before I start, I think I would like to give notice to members opposite and to government that a press release was just issued by BCUC announcing that, in fact, B.C. Hydro rates will go up 3 percent this year, despite what the government claimed: that it was going to freeze B.C. Hydro rates. Why that’s important is that it makes us wonder to what extent this budget will be affected, in light of the debt that is being put on to British Columbians, despite the fact that we were told that rates were not going on.

The member for Surrey-Whalley and I did probe the Minister of Energy, Mines and Petroleum Resources on this topic, and we were assured that rates were not going to go up. In fact, they are going up. So it does not bode well for instilling confidence into the full suite of budget measure implementations that are being put forward.

The most notable changes in the act that we’re seeing here today are changes to the Income Tax Act, which I’ll come to — important changes with respect to reporting — and changes to the Land Tax Deferment Act and the Home Owner Grant Act. Again, much to do with reporting, to ensure that characters out there are not getting away with financial shenanigans in terms of  claiming things like homeowner grants or avoiding taxes that they should otherwise pay.

There are changes to the Motor Fuel Tax Act, which are allowing Victoria regional transit to get an extra 2 cents per litre in gasoline. What’s remarkable about this is that gas taxes like that are very good for raising revenue for public transportation. The issue, of course, in Victoria is that we are the capital of the electric vehicle. I suspect that the government has over budgeted its expected revenues from this as the electrification of Victoria’s vehicular sector continues to grow.

Changes to property transfer tax are an important component of the Budget Measures Implementation Act — in particular, the additional levy being applied to properties over $3 million. I’ll come to that in a second, because again, as with many of these things, there needs to be careful analysis of the details. Of course, the Provincial Sales Tax Act to levy a surcharge on vehicles over $125,000 — I will come to that again in some detail.

I’ll start by recognizing what I could not find embedded within the budget implementation act itself, but it was mentioned directly by the Finance Minister in her opening remarks. It’s a very important change that’s being implemented for cruise ships in British Columbia. We know right now that cruise ships in British Columbia are at an unfair competitive disadvantage with cruise ships that come to Seattle. The reason why is that cruise ships in British Columbia pay a carbon tax when they use marine gas. Now, marine gas is more frequently used today than the traditional bunker fuels of yesteryear, which don’t have the carbon tax applied. The reason why they’re not applied is, if you’re an international carrier and you fly from one jurisdiction to another, international reporting regulations do not require you to actually count those emissions to your jurisdiction.

So this may not seem like a big change, but it is an incredibly important change. The cruise ships, the modern cruise ships, the cleaner cruise ships using marine gas are no longer at a disadvantage if they fill up in Victoria or British Columbia or Prince Rupert. So now they can actually make, in their decisions as to where to go, a financial windfall by not being penalized by coming to B.C. Thank you to the minister, and thank you to the Finance Committee. We recommended discussions about this — and the presentation that was made to us by steamship operators. This was an important addition. It won’t get the attention I think it deserves, but it certainly will make a big deal in terms of the cruise ship industry.

Coming to the Income Tax Act. What’s happening in that, which I think, generally, we can support — and this is embedded within sections 14 to 34 of the act — are important changes that parallel that which was done federally with respect to clamping down on anti-avoidance. That is, there are new definitions and new rules that are being put in place to ensure that the misuse or abuse of provisions in other acts, which the income tax relies upon, will be subject to the same rules as embedded here.

A lot of incidental changes here. A lot of this is actually not, per se, a fundamental part of the government’s budget but rather important work that needed to be done by the civil service — legislative additions — in order to mirror or match legislations that have clearly been brought in place federally.

Coming to the Land Tax Deferment Act, which is section 88, we notice in here that it provides for information-sharing and use of information provided under the Income Tax Act, and back and forth. In particular, there are changes to the Home Owner Grant Act to provide for the same information-sharing. Why this is important is a couple of things. It’s a welcome change, in my opinion. It’s a welcome change, because it actually, again, has significant implications for tackling tax avoidance through enabling information-sharing across multiple jurisdictions.

For example, there could be people that are claiming that a home is their principal residence and claiming the home owner grant for the purposes of either not paying — getting a grant — or deferring taxes, if they’re a senior, and they wish to defer taxes against the property until such time as they sell, as that property is sold. We now are requiring information be determined for tax purposes, whether they’re a resident and, in fact, if they’re paying income taxes here and, frankly, if they’re living here in British Columbia.

Coming to the Motor Fuel Tax Act — again, sections 42 to 50 of the bill…. It’s a large bill, more than 40 pages of very dense language and multiple sections that cross-reference each other — a very complex bill. It’s a component that was asked for by the region where I live, here in the capital region, to allow additional revenue sources for the regional transit authority. I’m sure that they’ll be pleased, and this becomes effective April 1, 2018, when we get a two-cent per litre addition here in Victoria, up from 3½ cents to 5.5 cents — again, for regional transit initiatives. My only hope is that we ensure that such initiatives actually start to represent the future and get us down towards bringing our communities in the West Shore and on the Saanich Peninsula closer together with rapid forms of transportation.

The Property Transfer Tax Act. There are some very important changes here. Some that are simple, just information-exchanging. For example, currently, the anti-avoidance rule that is being fixed here, only applies to the foreign buyers tax. So now what’s happening is the definition and the language that was only applied to the foreign buyers tax, which is being increased to 20 percent, is now broader. It’s now applying throughout the act to ensure that, avoidance is being captured.

There is also the important change, which is a revenue-generator here, which is additional levees on the property transfer tax for homes that exceed $3 million. Presently it’s $2 million above $200,000 to $3 million. Now it’s going to be an additional three percent, to take it to five percent of the value of the home above $3 million.

Again, one of the things I have a problem with is that property transfer tax is a very regressive form of taxation. In general, it’s essentially penalizing home ownership and moving up and down as you age. As your family grows, you typically get larger houses, and as the family shrinks or you retire, they typically get smaller. We’re taxing all the way along the lines there. Again, this was being used….

The idea here, of course, is to put a clamp on upper-end homes. But, as with all of the government’s measures to deal with housing, I, frankly, believe that they’ve missed the boat. What I mean by that is that it appears to me that government is using our housing crisis rather than as a source of revenue to build supply, affordable housing, which is part of their plan…. Why that’s problematic and why I believe that to be the case is if you look in the budget, budget revenues are expected to either remain constant or actually grow from things like property tax transfer tax, a speculation tax, foreign buyers tax.

If these tools were actually being designed to clamp down on the speculative market, you would expect, for example, a speculation tax to go to zero. But it doesn’t. It grows and then stays flat. This is troubling to me. I think we’re missing the boat as to what the issue is.

The issue, we know, is offshore capital flowing into B.C. in a highly unregulated manner, leading to speculation. And rather than dealing with the problem, we’re in a crisis. Critical times deserve decisive measures, not tepid responses like we see here. So the property transfer tax, five percent above $3 million. Again, why $3 million? Why not $2.2 million? Why $5 million? It seems to me somewhat arbitrary and a means, a way, to actually grabbing cash.

In some sense, you could view it almost along the lines of a form of an inheritance tax. People, as they get older and sell their homes for their children, are going to have a…. It’s typically if you’re living in Point Grey and you’re either or foreign buyer, you’re a multi-millionaire, or you’ve lived there all your life and you’re going to sell your home and move out, as some people have spoken to me about. This is viewed as a form of an inheritance tax.

This change takes effect February 21, which was pretty rapid after the budget, so it’s in place now. A tax may have the effect of exerting some downward pressure, but it’s actually not dealing with the problem as I articulated it. It’s not dealing with the issue at hand, the issue being offshore money flowing into our market.

We know about the laundering issue. We know about the link to the drugs and the money coming in from the drug trade and the fentanyl crisis into the real estate market. We’ve had excellent investigative reporting in that regard, and the government’s measures are not actually targeting that. They’re targeting everyday homeowners as well as other people.

Some of the members opposite have raised the issue of speculation tax. Now, as we’ve discussed the budget in general, and I understand and recognize that, the actual measures of implementation here about the speculation tax are not embodied and embedded in Bill 2. Nevertheless, I think it’s important to put on record that I share some of the concerns that opposition members have raised on the issue of a speculation tax.

To me, it’s actually not a speculation tax. It’s a form of a vacancy tax, a provincial vacancy tax. But the concern I have, and the concern that has been expressed to me, is multifold. I don’t think government has thought this through. I don’t think government has thought what problem they’re trying to solve.

They’re looking at this issue of affordability, whether it be through — what I just discussed — the property transfer tax changes or the speculation tax, and they’re viewing this as a means and way of grabbing revenue in order to build affordable housing or build campus housing. Now, I have no problem grabbing revenue if you have an outcome from somewhere, but we’re not dealing with the problem.

Coming to the speculation tax, as mentioned multiple times by members opposite, there are multiple problems with this. Many people, for example, have a home on a ski hill, which may be part of a rental pool. Let’s suppose I have a condo at Sun Peaks that I actually use a couple of weeks a year — I don’t, but if I did — but it’s in a rental pool. Perhaps it’s zoned tourist commercial, which means you can’t actually rent it for more than six months because of the individual zoning. Perhaps it’s in a pool. Is that exempted or not? We don’t know.

There are people who plan to retire out to B.C. They may have bought a condo here to protect themselves from the market, maybe a couple of years prior to them retiring. That condo may be vacant. It may be vacant for a short term. Should they be taxed? Why is it that the government’s targeting fellow Canadians? Why is it not recognizing that the problem is not people from Prince Edward Island or Saskatchewan? The problem is offshore money, bypassing due process in normal channels, flowing into our real estate sector.

Again, I have a lot of sympathy for the arguments raised opposite on this, even though specifically, right now, we’ll have to wait until we see legislation emerging, because it’s not actually in Bill 2.

Coming, again, to some of the requirements. Some might think this is onerous — the level of information that this bill is actually asking be done, be provided, as part of the property transfer tax act changes. They’re things like the date of birth of the buyer, the buyer’s social insurance number or individual tax number, the buyer’s citizenship and residency status, the foreign country of citizenship if they’re not a Canadian or permanent resident. Clearly, these are new additional pieces of information that government is grabbing. We also know now that there’s more sharing ability between income tax, property tax acts, etc., to allow cross-checking and target those avoiders.

Similarly for corporations, we’re now requiring more information in the transfer of properties. We could argue about the issues of privacy. What has to be front and centre, of course, in all of this, is that we’re careful with the data that we’re collecting. I understand and support government’s desire to crack down on people who are cheating the system. However, we also have to recognize that we are collecting a lot of very personal data on issues, and we have to be very careful how we do that.

We know that one of the biggest ways that we’re seeing our property escalate in value artificially is through offshore companies buying British Columbia real estate. I’m not sure whether or not partnerships are covered, because that is one of the ways that people are avoiding the foreign buyers tax. I’ll ask that when we get to committee stage.

For corporations, they now must return…. I guess partnerships should be included in that. They have to give information on the total number of directors; the number of directors who are Canadian citizens or permanent residents; and each of these directors, now, has to provide their citizen status or permanent resident status information, date of birth, social insurance number and, for people who are not Canadian, similar information from where they’re from.

I just got some notes given to me here — notes about the B.C. Hydro rate freeze that didn’t happen. We’ve just issued a press release, but I reserve that for other conversations and not here on Bill 2 right now.

One of the things I do like, of course, is also that the government is targeting the beneficial owners of bare trusts. Now, as we all know, this is another means that people have used to avoid, essentially, property transfer tax, at its very fundamental level. Also, it’s a way of hiding actual ownership. If property is purchased in a trust, the trust is owned by a corporation or an individual, and when you dispense of a property, rather than selling the property, you sell ownership of the trust. So there’s no transfer of title. In British Columbia, we still tax transfer of title instead of transfer of beneficial ownership. That bare trust loophole I raised three or four years ago here in the legislature, still, government hasn’t closed it.

I don’t understand why they haven’t closed it. They’re collecting more information here. When I stood opposite, the now Attorney General railed on the government of the day — day after day — on the need to actually clamp down on the ability of people to hide and not pay property transfer tax. Yet, here, we have an opportunity to close that loophole, and what does government do? It collects more data.

I assume we’re going to get a report from this at some point down the road too. Or we’re going to send it to a committee to study it and make a decision. Government didn’t need to do that. Government could have made that decision now, which puts us, of course, in a predicament.

Obviously, we want to move forward. But obviously, we must think of the collective when we determine whether we support or don’t support a budget or its implementation act. This could have and should have been fixed now. Obviously, I support the collection of additional data — the social insurance numbers of beneficial owners, etc. — for the purpose of clamping down. But we’re not actually doing anything. We’re not actually clamping down.

Still, if I’m a wealthy individual and I want to buy a property here and I want to not pay any property transfer tax, especially if I want to buy an expensive property, I would be a mug if I were to buy an expensive property in anything other than in bare trust. Nobody in British Columbia is going to pay that 5 percent tax if they’re actually smart.

Because what they’ll do is they’ll buy properties in a trust, and everybody will be selling beneficial ownership of the trust. Nobody will be paying property transfer tax, not even the 5 percent. They’ll be paying zero percent. The reason why they’ll be paying zero percent is because there’s no change of title when you change ownership of the actual bare trust.

Again, government could have closed this. They’re going to study it. I don’t understand it. I frankly don’t think British Columbians understand it. Frankly, I don’t think anybody who wants to game our system is going to actually go and…. Anyone who want to game it has got another loophole to game it in.

The best way to do it is to work a deal with someone where you’re buying a house for, oh…. Here’s the way to gain it right now, here and now. You have a house. You know it’s below market, and it would sell. But you want to sell it for a higher amount. So you sell it to buddy over here for $2.9 million.

But it may have been registered on title, and you want to change it into a trust. Okay. You’re changing the title there. You’re putting the trust on title. You paid $2.9 million for the property, put it into a trust. But you really want to sell it to this guy over here.

So what do you do? You turn around and sell the shares in your trust for $5 million, the true value of that house, to this guy over here. So this guy has bought a $5 million home and paid only the property transfer tax on the first $2.9 million. There are so many loopholes here that this should have been closed.

Frankly, it’s frustrating to sit down here and to have listened for four years to the now Attorney General, listened for four years to member after member after member hurl abuse at government for not closing this loophole. It’s also a bit ironic to listen to opposition members suddenly claim the government is not dealing with the problem properly, but that’s another story.

But the government had the opportunity, and they failed. They failed here. They’re collecting more data. Good for them. But frankly, we need action, not more reports, committees or subcommittees.

When we come forward, one of the other good changes is that now government may say, “Okay, in Bill 2, we’re now allowing government access at no charge to MLS information,” because in MLS, there might be more information that might give more information on fair market value.

But that way of gaming the system that I just outlined won’t be reflected here because…. “Let me list the property for $2.9 million on MLS. I can list it on MLS and sell the property right away on MLS. It’s gone through MLS — information there. I buy it in a trust, and I sell my shares in the trust for $5 million. Okay, I’ll wait six months. I’ll call it my principal residence, and I’ll pay no capital gains tax either.” It’s just that the system is messed up, and government has not dealt with that.

There are penalties, though. The government is now allowing the administrator to actually put penalties in place that are equivalent to 100 percent of the tax avoided if they catch a means and ways of avoiding it. But again, it has to be pretty blatant when there are clear legal loopholes right now that the government is not closing that will allow people to avoid (a) paying any property transfer tax or (b) paying the 5 percent.

To the changes to the provincial sales tax, again, the government missed an opportunity here. I sometimes wonder if the left hand is talking to the right when decisions are made in government in general. We have government recognizing that there are luxury cars — for example, a car worth over $125,000 — are really something that, perhaps, you might want to put a little bit of a tax on. Because there are costs associated with this, and people who can afford that…. You might think, if you can afford a Rolls-Royce, you can afford a little more sales tax than, perhaps, if you have a small, secondhand beater. Okay. I get that argument.

So you make changes to the Provincial Sales Tax Act to allow a 10 percent to 15 percent increase, of PST applied to vehicles worth $125,000 to $150,000, and for vehicles worth over $150,000, the tax increases from 10 percent to 20 percent.

We’re going: “What’s the problem with this?” It may sound okay. This is good. We’re taxing the rich. We’re Robin Hooding the system — taxing the rich and giving the poor, taxing the Maserati owners and giving it to the people who can’t afford a car. Okay. I get that. But I don’t think government actually understands that there are also segments of our economy where we rely upon people — the early adopters — to actually pay more for certain things to allow us to actually get into the market.

Let me give an example. The first people who bought cell phones paid a lot for their cell phones — the big, big cell phones. They paid a lot, and those so-called early adopters are the reason why we are able to buy cell phones so cheaply, because they paid the R-and-D costs of the companies, some of which went bankrupt, that created the technology that we use today.

The first people who bought laptops paid a fortune. The first people who bought LED-screen TVs…. Can you imagine the first people who were spending thousands of dollars for a flat screen TV? They were paying the R-and-D, research and development, costs that allowed the price to come down so much that they give them away in cornflakes boxes now, pretty much.

But what the government has failed to see here is that there are some new types of vehicular transport — hydrogen fuel cell vehicles and some high-end electric vehicles — that are actually new technologies, and there are extremely high R-and-D costs associated with them.

What we’re doing is, rather than government giving a handout to these companies to keep them going, we’re letting those who can afford it pay the R-and-D costs for these companies. It’s pretty clear to me that there should be an exemption here, and that exemption should be for cars that are zero-emitting vehicles, whether they be fuel cell or electric cars.

Some Teslas are in this price range. Tesla is now only able to deliver a sedan because all of those people were able to invest in the R and D of the earlier models — the Model X and the Model S. But now they can develop the sedan.

What about hydrogen fuel cell? That may be a technological pathway. I doubt it, but it may be. We shouldn’t be taxing those early adopters and putting in barriers that way. I hope the government is open to an amendment which excludes zero-emission vehicles in this regard.

Coming down to the municipal and regional district tax and the PST, we now have legislation happening here that’s allowing the accommodation platforms, like Airbnb and, say, VRBO, vacation rental by owner. We’re allowing these organizations and municipalities, as well, to actually start to collect municipal and regional district taxes and PSTs and submit them. This is enabling legislation. It doesn’t mean that if I’m renting my house on Craigslist for a week that I’m going to do it, but it would allow me to do it if I so chose to do so.

Coming to the school tax, now we have a two-tier system, a two-tier additional school tax on high-end properties. One threshold is $3 million, and the second threshold is $4 million — again, somewhat arbitrary numbers. I guess it applies to a lot of people who live on the waterfront here on Vancouver Island or in Shaughnessy or Point Grey. I’m sure the member from Vancouver-Quilchena will have concerned citizens in his riding.

Again, we have two new property school tax rates, and what’s happening now, of course, is there’s going to be an addition of a 0.2 percent additional school tax on the residential portion assessed between $3 million and $4 million and a 0.4 percent tax on the residential portion assessed over $4 million.

This exempts things like purpose-built rental housing, etc. Now, again, I can see the problem, and I can see some of the concerns. Increasing designated….

I won’t be much longer, hon. Speaker. Although I am the designated speaker on Budget Implementation Act, Bill 2, I do see the green light coming.

For many homeowners, taxes can be deferred, as we know. So if you’re a senior citizen, you don’t actually have to pay your property tax. You might want to defer it. But there are people who want to ensure that they’re not leaving debt in that way so there is some discomfort with this. I don’t know that it’s insurmountable, but there is some discomfort within senior groups, senior citizens, about what this means.

I don’t know about the unintended consequences. Let me give a specific example, which I hope government reflects upon. I know a specific case of an individual with special needs who lived with his parents in a home. Now, that home probably could have been worth pretty close to this amount of money. When the parents tragically were deceased, the individual stayed in the home. Now the individual would be, in this case, subject to taxation.

But that individual may not be a senior. That individual, in the case I’m talking about, was not a senior. It was a 40-something-year-old gentleman. That 40-something-year-old gentleman, who’s barely making ends meet, would now be subject to a punitive, additional tax. I hope government thinks about, in fact, exempting people who perhaps have special needs or special circumstances.

Nobody’s going to stand up here and call government out for increasing the tobacco tax — minor increases. I can’t believe that people still are willing to spend 12 bucks for a pack of cigarettes, but they do, and they’re going to pay more clearly, as this goes forward. What we didn’t see, of course, is any legislation yet on what kind of tax revenue we would expect from cannabis as it comes forward. Hopefully, government will be letting us know that as we move forward.

With that, I’ll say that by and large, obviously, I will support at second reading the Budget Implementation Act. I won’t speak for my colleagues, but we have had a brief discussion, and I’m pretty sure that they’re supportive as well. Well, I know they are, in fact.

But we’re not entirely happy with the implementation act. We don’t see the details on the speculation tax. We should have seen those details. The property transfer tax issue, of course, has been left out in terms of proper enforcement, of actually ensuring that people pay it. That’s a mistake. Government should have fixed that. The issue of electric and non-emitting vehicles over $125,000 — that’s a punitive tax of early adopters. It shouldn’t be there. Hopefully, government will reflect upon this as we move forward.

With that, hon. Speaker, I thank you for your attention, and I look forward to the remaining debate

Video of Speech

One Comment

  1. Rob McConnachie, CFA-
    March 7, 2018 at 4:06 pm

    Thank you for bringing attention to the bare trust loophole not being closed. It is indisputable that closing this loophole would go a long way in reducing money laundering and tax fraud, while at the same time increasing government revenue – a win-win solution. I find it incredulous others don’t fully support you on this. You are doing the right thing for the people of BC. Thank you for your public service and keep up the good work!