When Finance Minister Eugene Kostyra brought in the new land transfer tax in 1987, his provincial budget statement claimed the tax was fair because it “gives a break to those purchasing average and low-cost housing.”
I guess they felt that, if you were buying a home above the average price, you were privileged enough to pay an additional home buyer’s tax to the government. In fact, if you read some of the logic behind B.C.’s rationale for the high land transfer tax that province levies on its citizens, it is actually called a wealth tax. Let the rich pay!
Even if you accept the preceding premise, which many home buyers would challenge on the basis of unfairness and being singled out for putting money into more expensive shelter than someone else, the reality now is that no one gets a break. There is no generous first-time home-buyer exemption similar to B.C. and Ontario (Alberta and Saskatchewan do not have a land transfer tax).
As a result of the average house price tripling in 24 years, the majority of homes, including many being purchased by first-time buyers, are in excess of $200,000, the level at which the highest land transfer tax rate in the country kicks in. The tax then becomes a potential inhibitor to a buyer being able to come up with enough money for a down payment and other closing cost dollars to purchase a home.
While hardly a fair tax in the first place, as it had nothing to do with the replacement of the corresponding government service required to register a title for a property purchase, it can be said, as conceived in 1987, that it was then more akin to a user fee as we now understand the term. On a modest home under $80,000, the tax charged based on a tax rate schedule was zero per cent from $0 to $30,000, 0.5 per cent for values from $30,001 to $90,000, one per cent for values from $90,001 to $150,000, and 1.5 per cent for any amount over $150,000. At the time, it was noted that for any property of $75,000 or less, the tax was not much different from the previous flat fee charged by the Land Titles Office. It was said to be revenue-neutral.
Fast forward to 2011. The average selling price of a single-family home is over $250,000, and the government now charges a two-per-cent land transfer tax for any home sold for over $200,000. This higher rate came into effect in 2004. It’s a potent combination of higher sale prices and the highest tax rate in the country, meaning the tax grab is far in excess of anything initially contemplated in 1987, and now adds over $50 million to the province’s revenues. In 1988, Kostyra said it would only raise half the $9.7 million that had been budgeted. One of the reasons cited for not meeting their expected dollar target was that savvy buyers rushed to register their properties prior to the May 15 launch of the new tax.
Do you think there would be a similar rush today? You bet! For them, the land transfer tax impact is far greater than in 1987 — as much as 1,800 per cent on the same home bought in 1987. With this in mind, you may come to appreciate how the tax can truly be an impediment to buying a home.
WinnipegREALTORS® has put together a new addition to the 2muchltt.com website dedicated to showing comparisons in land transfer taxes paid for the same home in 1987 and in 2010-11. An older home built in 1904 in St. Boniface sold for $75,500 in 1987 and $266,000 in 2010. The land transfer tax increased 1,305 per cent from $227.50 in 1987 to $2,648.00 in 2010. While both the home’s sales price equates closely to Winnipeg’s overall single-family average sales price for the respective years, it was anything but revenue neutral in 2010. Quite simply, it is now a land transfer tax in overdrive — excessive to put it mildly.
In various neighbourhoods throughout Winnipeg, the statements of home buyers drives home the message of the excessive tax.
“Although we purchased a house here in Winnipeg in 2003,” said homeownwers R & D, “its value has gone up considerably and at some point we are considering downsizing which of course would mean the purchase of another house or condominium.
“However, the thought of having to pay the increased amount involved in the revised 2004 tax (two per cent) makes us hesitant to go ahead. We will wait until something can be done to improve the LTT situation.
“I would appreciate any website that would keep us current on this situation or anything further we can do as homeowners,” they added.
The website is www.2muchltt.com
It is now quite evident that the land transfer tax needs an overhaul, or, at minimum, a real examination of its intent. Is the objective of the current provincial government to discourage, frustrate and even impede home buyers? Hopefully not.
With the increased immigration to our province, we should be doing exactly the opposite! Manitoba has the lowest rental vacancy rate in the country at under one per cent. So there is a need to encourage a more robust first-time home-buyers’ market. By doing so, we will free up desperately needed rental units for Manitobans unable to buy a home.
How can you make a difference on this serious issue? Ask your candidate about what they are prepared to do with the land transfer tax if they get elected October 4.
One thing government is apt to do in resisting any call for a change to an unfair tax such as the LTT is to say where will it find the money to replace the tax? There is a laundry list of items where efficiencies can be found to make up for the lost revenue. And the money home buyers save from a reformed tax will undoubtedly be put right back into the economy through accessorizing their new home to their particular needs, including renovations or alterations.
Providing $10 million in home-buyer tax relief represents a mere one-10th of a percentage point of the province’s entire budget — a trifle.
On the other hand, if you ask a number of home buyers, especially first-time buyers, where are they going to find the money to pay the tax, the answer in a number of cases is that they have no more funds available in their home-buying budget. As a result, they lose the opportunity of gaining a foothold in the homeownership market in order to build a solid foundation and future for their family.
Over a lifetime, a homeowner on average can sell and move every five to seven years, so that multiple payments of the land transfer tax means they will lose thousands of dollars in equity that they would have otherwise transferred to their retirement nest egg.