Are these presumably foreign-funded buyers the folk that Clark now wants back in the Vancouver real estate market, which has seen sales nose-dive 40 per cent in the wake of the tax?

The rationale for the BC Liberal government to offer exemptions is sound, assuming that the goal of the tax is to improve affordability by preventing foreign capital further skewing a market that had become detached from local incomes (and is not, say, a pre-election political tactic). People who live and earn locally should not be unfairly punished.

But there are good reasons to worry about using work permits as the basis for such exemptions, instead of offering offsets against actual income tax payments.

There’s a risk that foreign-funded buyers will pursue permits primarily to escape the tax. There’s a risk that new grads, backed by foreign funds and/or acting as proxies, will dive in.

And the stakes are high: the 15 per cent tax adds more than C$134,000 to the benchmark price of a Metro Vancouver home, which currently sits at C$896,000. The bill on a detached home on the city’s Westside, based on last year’s average price of C$2.63million? More than $C394,000.

The backdrop remains Vancouver’s sky-high unaffordability, with a price:income ratio of 11.8. That is the third-worst in the world, behind Hong Kong and Sydney, out of 406 cities in the 2017 Demographia unaffordability report. Vancouver’s unaffordabilty has soared 123 per cent since 2004, the worst deterioration among the world’s major markets.

Post-grad buyers and a ‘Swiss cheese’ proposal

Vancouver immigration lawyer Richard Kurland said offering foreign-buyer-tax exemptions to work permit holders was a “Swiss cheese” proposal. “The term ‘work permit’ is too vague to implement the intention,” he said, describing the proposal as a “legal loophole that you could drive Highway 99 through”.

A work permit “does not require you to work. It is permission to work, if you so choose,” he said.

“The gorilla in the closet, the real issue”, Kurland said, was whether or not a buyer was a tax resident of Canada, “reporting global income and property to CRA and paying taxes here.”

Numerous circumstances existed in which people could obtain a work permit without actually working. “If you’re a student, say at UBC, your spouse can get an open work permit. It’s as common as pie,” said Kurland. “Or you can easily have a Canadian work permit and never even be in Canada. I’ve had cases like that,” he warned.

“Will this control property speculation in any way? No, you’ve just flung the barn door wide open by inviting anyone to come in and take what they want.

“You’ve just created an incentive for people to find legitimate ways to seek a work permit [so they can receive the tax exemption]. It would require some effort, but if, hanging in the balance is a quarter-million-dollar tax bill for buying a property, then I think people can afford to hire lawyers and accountants to get a work permit.”

He said there was a “really simple” alternative to determine eligibility for exemptions: “Just mail me a copy of your CRA notice of assessment, your T1, and you get an exemption.”

The idea that exemptions would be better offered on the basis of actual income taxes also appeals to economist Tom Davidoff, director of the UBC Centre for Urban Economics and Real Estate.

“Now, by trying to get rid of the error of taxing [locally earning] people they shouldn’t tax, most likely that exemption is going to open up more of the second type of error, which is failing to tax the people that you should.”

He offered a hypothetical: “People are going to suggest that ok, your kid is going to school, they get a post graduation work permit, earn C$100, pay C$10 in tax and now, tax-free, maybe buy that C$31 million mansion.”

Davidoff said he remained hopeful the government would be able to manage the risks, at least by excluding post-graduation work permits from exemption. He said there “absolutely” should be exemptions for work-permit holders whose primary income was derived locally.

But there was a “tension” between exempting genuine members of the Vancouver workforce, while dealing with the risk of a loophole for people buying on behalf of foreign family members. That tension made a dollar-for-dollar exemption based on locally paid tax more sensible, he said.

So, who gets an exemption?

So, does the government plan to extend the exemption to post-grad work permit holders, or holders of open work permits? The Ministry of Finance was non-committal when asked those exact questions.

“We are looking at options that provide targeted relief from the additional property transfer tax. This includes for people who become permanent residents soon after buying a home and for those who are coming to BC on work permits to live and contribute to our province,” it said in a statement.

“Now that the additional tax has effectively cut back the excessive demand we were seeing last year, we are in a position to make the adjustments necessary to help ensure we can keep attracting highly skilled workers.”

It added that the tax “will continue to apply to speculative foreign investment that can distort the Metro Vancouver residential real estate market. More details will be available when the regulations are announced.”

Those newly minted foreign grads, cashed up with deposits and clamouring for exemptions, will have to wait and see with the rest of us.

*

The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email [email protected] or on Twitter, @ianjamesyoung70.