Canada’s Tax on Being American
My husband and I were living in California when, in 2002, we used retirement funds to buy a picturesque condominium in Vancouver, British Columbia. Over the next 15 years, we paid our property taxes, tried to be good neighbors, and supported the local economy. Then last year the welcome mat was pulled from under our feet.
For decades the U.S. and Canada have been tangling over trade issues, like rules on dairy products and softwood lumber. But Canada’s latest creative attack is on the retirement savings of Americans like me. President Trump may have a point when he says that “people don’t realize Canada’s been very rough on the United States.”
In August 2016, Vancouver introduced a 15% tax on real-estate purchases by foreigners. Within eight months, the levy had scooped up 102 million Canadian dollars. The tax was implemented so abruptly—going into effect six days after it was passed—that buyers in escrow either had to lose their down payments or cough up an additional 15% of the purchase price.
A few months later, Vancouver introduced an annual “empty home tax” equal to 1% of the property’s assessed value. Since the levy is inapplicable if your Vancouver home is your principal residence, it’s obviously aimed at foreigners like us. At our condo’s current valuation, the tax will cost us almost US$33,000 a year.
According to the Vancouver Sun, the city will ensure compliance by relying on “snitch-and-audit enforcement.” Neighbors will be “leaned on” to help uncover homes claimed as principal residences that actually aren’t. When the public objected to the tax, the Vancouver City Council’s response was simple: pay up, rent out your property, or sell.
Renting our place out for at least six months a year would circumvent the tax. Except that our condo rules require a minimum lease of six months. This is impractical given that we want to be there during the summer and allow friends and family to stay periodically throughout the year. Even worse, if we did decide to rent, we’d be liable for “deemed disposition” taxation and would have to file a Canadian return, even though we’re Americans.
Nationality-based taxes are among the worst kinds of protectionism. The North American Free Trade Agreement expressly covers real estate owned by Americans in Canada. For that matter, Nafta covers real estate owned by Canadians in the U.S., of which there is plenty.
When America’s neighbors buy U.S. property, they aren’t targeted for extra taxation. Canadians are quick to criticize Americans for protectionism, but if Phoenix and Palm Springs were to pull the same stunt as Vancouver, the squawking of the “snow birds” from up north would be deafening.
With Prime Minister Justin Trudeau at the helm, Canadians are reveling in international adoration, which stokes their national self-identity of kindness, politeness and fairness, supposedly in contrast to their brutish southern neighbors. Perhaps it’s time Canada practiced what it preaches.
Ms. McCallum is a retired professor of psychiatry and behavior sciences at Stanford Medical School.
Appeared in the September 12, 2017, print edition.