BC’s Property transfer tax a bad law that needs to be fixed

Wednesday, July 23rd, 2008


Is it fair, I asked B.C.’s revenue minister, to charge property transfer tax on someone’s own assets — on improvements they’ve long since paid for, and paid the sales tax on — when, after a period of leasing, they finally buy the land?

Is it rational, I asked the small business minister, to nail some start-up businesses with an extra tax that richer competitors don’t pay just because a cash-strapped owner must lease land for a few years until he can afford to buy?

I asked these questions a dozen different ways on Monday. And the minister I asked — in both cases Kevin Krueger, who took over both portfolios a month ago today — assiduously ducked.

Krueger’s rationale for dodging is that these issues relate to a case that may come before him on appeal.

He’s right, of course, to assume I’d report on and interpret his answers in the context of at least one specific case. I wrote last week about how theme park owner Gary Semft of Harrison Hot Springs was hit with $3,700 in extra PTT on the value of improvements he had made to leased land he eventually bought.

Readers have also told me about several more PTT injustices, including the particularly offensive practice of charging PTT on people’s own cottages when they buy formerly leased recreational land from the Crown. Talk about sharp business practices — the government nails its own clients with a spurious charge just because it can.

This is a bully’s tactic. No private firm could pull it off, and most would be ashamed to try. So I understand why Krueger might not want to give a writer grist for a column on these issues.

But I still think his excuse for ducking my questions is a crock. Taken at face value, it would mean he could never say anything about any tax, because every tax his department collects could conceivably lead to an appeal that comes before him.

On the plus side, Krueger did talk a bit — in very general terms — about his duty to be fair.

He made the point, no doubt true, that sometimes legislation gives him and his staff absolutely no leeway, even if they think an outcome is unfair. But he also conceded — and this is significant, if he follows through — that when inflexible legislation leads to an unfair outcome, he and his colleagues have a duty to fix it.

He even gave an example — a first-time homebuyer who, thanks to a technicality that wasn’t his fault, lost his eligibility for a tax break. Although the law left no room for him to intervene, he said, it did convince him the law needs amending to make it flexible enough to deal with similar cases in future. This may be cold comfort for the poor sap who got stuck with a few thousand dollars in extra expenses, but it’s a much better outcome than when the bureaucracy shrugs at an unfairness and does nothing.

Krueger refused, however, to signal whether he thinks the property transfer tax law is too inflexible, too prone to unfairness, and thus due for reform.

I’m guessing that, if he hasn’t already felt a lot of pressure on this already, he soon will. My in-box these days is reflecting a heightening concern with the PTT, which seems to be the latest area where tax auditors are throwing their weight around in ways that are, at best, hard-nosed and, at worst, arbitrary and mean.

Businesses, especially, seem to have legitimate gripes. They’re supposed to pay PTT on “fair market value,” but that’s an elusive number that BC Assessments often doesn’t get around to calculating until a year after a sale. Even then, the assessment is often an “estimate” (i.e., an assessor’s wild guess). Thus the business must — usually at the cost of considerable time and money — fight to have it reduced to a realistic amount. This adds not only costs but also an unnecessary amount of uncertainty to business property transactions.

In a perfect world, the property transfer tax would be scrapped. It’s an ill-conceived policy. It’s a drag on business start-ups, and an extra cost on the already daunting cost of home ownership.

These problems are made worse because the law hits at the worst time, when people who’ve just made a big investment can least afford it.

it so perverse — sky-high property prices — also makes it a cash cow for the government, which is not going to stop squeezing this teat any time soon.

That leaves the moral issue: Fairness. Government should feel obligated to spurn the kind of sharp practice that makes most voters squirm. Even if I had the power to do so, I simply would not try to impose on people whom I do business with a charge for retaining assets they already own. I think it’s wrong. And I’m betting a big majority of my readers — i.e., other voters — agree.

If we wouldn’t do it, Mr. Minister, neither should you or your colleagues do it on our behalf. So add this to the list of bad tax law that you guys have a duty to fix.

© The Vancouver Sun 2008

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