Nova Scotia’s new provincial government is signalling looming property tax premiums for non-resident purchasers and owners. Incoming Finance Minister Allan MacMaster has been instructed to introduce a provincial deed transfer tax and to impose an additional levy equating to $2 per every $100 of assessed value for residential ratepayers who pay their income tax in other jurisdictions.
The two tasks are included in MacMaster’s mandate letter, one of the series of legislative to-do lists that Premier Tim Houston recently delivered to all his newly installed cabinet ministers following the Conservative party’s August 17th election victory. Plans for the new surcharges were first outlined in the new government’s campaign platform, which also cited 2018 Statistics Canada estimates that non-residents own 3.9 per cent of Nova Scotia’s housing stock (excluding purpose-built multifamily rental properties), a higher rate than in either British Columbia or Ontario.
“There is currently some legitimate concern that many properties are being purchased by non-residents, who may or may not plan to spend time in those properties,” the platform document states. “We will impose a new tax and property levy for buyers who do not pay income tax in Nova Scotia. These fees will limit purchases from non-Nova Scotia income taxpayers and, for those who do purchase, will bring in an added regular stream of revenue for the province.”
Some observers hypothesize the latter consideration is the more pressing motivation. New revenue could help offset the costs of other tax-related campaign promises. Those include a provincial income tax exemption on the first $50,000 of earnings for construction workers under the age of 30, and a pilot five-year 50 per cent rebate on provincial corporate taxes if companies pay the savings back to employees through new hires or salary increases.
“There is always commentary around potential changes in tax revenue or potential new opportunities for tax revenue. I think there’s been an especially high emphasis on that kind of thing given the pandemic and given the financial situations of governments and municipalities,” observes Ryan Hartlen, a real estate broker with RE/MAX Nova in Halifax. “A hot real estate market has contributed to the idea that not only would this probably be a pretty healthy amount of money, but it would probably be more acceptable for voters.”
Clarity lacking on targeted residential ratepayers
The proposed provincial deed transfer tax would be added on top of the one-time municipal deed transfer tax that all new purchasers submit to their applicable local government at rates varying from 0.5 to 1.5 per cent of the property sale price, depending on the municipality. Directions to the Finance Minister refer broadly to imposing the proposed new property levy on “every non-Nova Scotian taxpayer held property” although it has thus far been framed only as a measure to dissuade non-resident investors from speculating in the homebuyers’ market.
“Under the assessment legislation, residential property is a broad category that covers not only single-family homes, but also residential rental properties of all sizes, manufactured home communities and seniors housing,” explains Giselle Kakamousias, vice president, property tax, with the Atlantic Canada real estate advisory firm, Turner Drake & Partners. “We trust that in the details (of the legislation) the new government will target the taxes appropriately vis-à-vis its stated objective of improving affordability.”
“On the commercial side, there is a significant amount of investors that own real estate under holding companies outside of Nova Scotia. These companies (if included) would have to undergo additional cost to transfer their holdings into Nova Scotia holding companies,” advises Mathieu Maillet, senior director, property tax, for Altus Group in Atlantic Canada. “The proposal does nothing to promote investment and growth in our province.”
Hartlen estimates 20 to 30 per cent of the transactions he conducts are for out-of-province buyers from elsewhere in Canada and beyond. Many are former Nova Scotia residents with plans to return in the future. He suggests they’ll more likely react to an additional deed transfer tax, which will be immediately added to closing costs, than a property tax bill they may not receive until months after they’ve taken ownership, particularly if they are paying steeper property taxes on a principle residence elsewhere. There’s also a possibility that Nova Scotia-taxpaying short-term tenants could take on the burden.
“It could have the undesired impact of decreasing affordability in the instance where out-of-province developers and investors simply pass the additional tax onto the end-user,” says Neil Lovitt, vice president, planning and economic intelligence, with Turner Drake & Partners.
Meanwhile, given that non-resident purchasers face much higher land transfer tariffs in Vancouver (20 per cent) and Toronto (15 per cent) than the 5 per cent provincial deed transfer tax proposed in the Conservative campaign platform, he calls it a somewhat dubious deterrent on purchasers intent on speculation. Additionally, Vancouver is set to increase its vacant unit tax to 3 per cent on assessed values that are typically much higher than in Nova Scotia.
“To date, we have seen no analysis on this, but suspect they (the surcharges) will do a better job of raising funds than materially affecting market trends,” Lovitt submits. “It may have an impact in rural areas where out-of-province buyers are more likely to own recreational properties and not have Nova Scotia addresses.”
Fallout expected for recreational property owners and host municipalities
There’s general consensus that recreational property owners and the municipalities that host them will be hardest hit. Hartlen foresees a double-whammy of the new tax premium in step with upward spiking property values as assessments catch up with recent market trends.
“On certain properties, once you get to sizable value, it’s going to be a pretty heavy tax for some people. The worry is, what does it do to the people who have family cottages here? You’re going to have some people decide they’re not going to own those properties here anymore, especially if they can find similar type properties in other parts of Atlantic Canada,” he projects.
The Nova Scotia Association of Realtors (NSAR) reports an average residential sale price of $442,000 in Halifax in August 2021, a 19 per cent gain over August 2020. Although the average sale price was more modest, even greater year-over-year increases of upwards of 35 per cent were recorded in the Annapolis Valley, the Highland Region and Yarmouth. The 2021 RE/MAX Recreational Property Report pegged the average sales price of waterfront properties in the Halifax vicinity at about $698,000 during the first four months of this year, which, at the proposed rate of $2 per $100 of assessed value, would equate to almost $14,000 in extra annual property taxes for out-of-province owners.
“NSAR and our members believe this tax will be detrimental to out-of-province owners, many of whom are seasonal property owners and contribute significantly to economies of the communities they own property in,” says Roger Boutilier, the association’s chief executive officer.
“Residential tax rates in smaller municipalities would be significantly impacted and rendered non-competitive for outside investors, and a number of rural communities depend on out-of-province residence economic activity,” Maillet concurs.
The new premier has yet to announce the date for his government’s speech from the throne so there is still no indication of when the legislation may be introduced. The Finance Minister’s mandate letter states only that it is to be within the next four years.
Barbara Carss is the editor-in-chief of Canadian Property Management.