Vancouver’s housing market has now reached the courts. A constitutional challenge under the Charter of Rights of Freedoms against British Columbia’s 15% tax on foreign property purchasers is underway.

There is deep interest in how this will unfold in a province whose housing market is integral to the economy. But vague constitutional issues like this invites so many different views. But in my opinion it usually boils down to common-sense considerations.

Narrowing the issue is helpful.

Some discussions of the case center on whether foreign buyers should be able to purchase properties in British Columbia

That’s not quite accurate.

The tax is just that: a tax. It does not ban foreign purchasers. It is a one-time charge per property. A foreign buyer can still purchase properties affected by the tax—multiple ones if they feel the compulsion to.

And this segues to the next point: the tax operates only in a specified area of Metro Vancouver. It is not province-wide.

A pending amendment will exempt foreign residents (and I use the term “foreign” to mean those without Canadian citizenship or permanent resident status) who reside in British Columbia with a work permit and pay taxes.

So, this tax applies when:

  • Someone who is not a Canadian citizen or permanent resident,
  • Who is not working under a visa and paying taxes in B.C.,
  • Wants to buy a residential property;
  • In the affected areas of Metro Vancouver.

Does this violate the Charter?

Section 15

The main argument likely to be advanced is that the tax discriminates under section 15 of the Charter. This section, the equality provision, is just that: governments cannot discriminate between people because of the reasons in the section or similar ones.

It seems like a wide and broad section at first glance because there are many reasons and ways to be treated differently by the government. An example is, say, a disability. Perhaps a certain condition receives much more government funding than another. It’s a section whose many, many cases could clog the justice system.

And the courts recognize this. Previous cases on section 15 have limited its reach. This quote from the Supreme Court of Canada about discrimination under section 15 is an example:

“The relevant inquiry is whether the differential treatment imposes a burden upon or withholds a benefit from the claimant in a manner that reflects the application of presumed group or presumed characteristics, or which otherwise has the effect of perpetuating or promoting the view that the individual is less capable or worthy of recognition or value as a human being or as a member of Canadian society, equally deserving of concern, respect, and consideration.”

A key question facing the courts is whether  having to pay the additional tax reduce a foreign buyer’s worth, dignity and value as a person?

That is one barrier for this challenge to hurdle.

If it does, then section 1 of the Charter kicks in.

Section 1

Section 1. I call it the Charter’s ‘grey area’ provision. It recognizes that sometimes it is necessary to infringe on Charter Rights. It lets the court uphold a law despite violating the Charter if it is reasonable and justified (the section 1 test is complex and a fruitful discussion of it is beyond the purview of this humble post).

This will be the next hurdle for this challenge.

I would expect the government to present evidence on the detrimental economic effects of the high housing prices to justify the tax. The warnings from the Canada Mortgage and Housing Corporation, Vancouver Board of Trade and economic experts will likely be presented, along with the government’s data showing the percentage of foreign purchasers. The government will attempt to show a link between foreign buyers, high house prices and the economic risks.

The government will also likely argue that the tax is needed to slow the dizzying growth in prices.

Key to the section 1 analysis is that the government doesn’t have to target the main cause. If speculation is the primary reason for the prices, the government can still target foreign buyers, as long as it is justified, reasonable and connected to the goal of managing the prices. The courts are hesitant to interfere in the government’s decision and their reasons for it.

Other Issues

An oft-read point is that Charter rights apply regardless of one’s citizenship. Yes. And no. Charter rights are immutable and based on universal principles of human rights. But section 6 of the Charter gives citizens greater mobility rights than permanent residents. This provision is limited to mobility, but as to the question of whether the Charter contemplates scenarios where citizens and residents have different degrees of rights, section 6 is illustrative.

Another is property rights. The Canadian constitution gives provinces the jurisdiction over property rights. It’s why the sale of real estate must be registered with the provinces, like the Land Titles Office in British Columbia.

The Charter does not protect property rights because the provinces did not want it included during the Charter’s negotiations. It is not surprising that the provinces want to keep this power as fully as possible. Saskatchewan was, interestingly, the main driver of this because they wanted control of foreign and absentee ownership of their farmlands.

This case will test the intersection of the powers of taxation and property. It will likely be a seminal decision which will further define the Canadian constitutional law. That’s why it will probably reach the Supreme Court of Canada. And if it does, then expect the other provinces to support the tax. The provinces want to protect their taxation powers on properties and this will be their chance to have their say.

Constitutional law cuts to the heart of the Canadian federal structure. Its decisions have far-reaching and long-lasting consequences politically and socially. The recent decision permitting legalized suicide is an example. The courts are attuned to the effects of their decision. They closely consider the individual circumstances of each case. A foreign buyer’s tax to cool rapid house price appreciations is seen differently than a foreign buyer’s tax for populist appeal.

The court will grapple with these questions: is an additional tax on foreign purchasers of residential properties in a small region, not a ban on those purchasers, discriminatory? If so, should it be extinguished, with the risk of re-igniting the conditions for an economic crisis? What is the scope of the rights, if any, of foreign purchasers of residential properties in Canada? Do the exemptions for those who hold work visas and pay taxes in British Columbia enough to overcome any potential discrimination? And, maybe implicitly: are residential properties a commodity for international buyers?

Even if that tax is ruled to be discriminatory and is not saved by section 1, the court has options rather than eliminating it. They can modify the law, remove offending provisions, or communicate to the province on how to change it, even giving the province time to do this before the law is ruled unconstitutional. The court has options to maintain the government’s aim of tempering price gains while addressing any potential discrimination.

I don’t purport to predict how this case will unfold or what the decision will be. Rather, I am expressing the novelty of this action; its hurdles; and the court’s likely consideration. It is not a simple matter, and that is constitutional law.

It promises to be interesting.

Thoughts on British Columbia’s foreign buyers tax and the Charter

One thought on “Thoughts on British Columbia’s foreign buyers tax and the Charter

  • Now, as a new dawn breaks in Metro Vancouver’s real estate market, realty companies and real estate boards are reporting the first anecdotes of deals falling through as foreign buyers forfeited deposits on binding deals rather than pay the new tax.

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