No, it takes money from the owners of the property. Rents are market based more than anything else. I don't care if the tax is 0 or 100k, the owner can only rent for what he can find people to pay. In my area (a vacation spot and college town), they could drop the property taxes to $0 tomorrow and rents will still go up. A high tax does not even really set a price floor since the owner would rather get something than nothing.
>No, it takes money from the owners of the property. Rents are market based more than anything else. I don't care if the tax is 0 or 100k, the owner can only rent for what he can find people to pay.
The subtlety you're missing here is the reduction in supply of rental units.
British Columbia punishes renters, as it taxes 'passive income' (i.e. rent), which discourages owners from renting out existing properties or building-to-rent.
> * British Columbia punishes renters, as it taxes 'passive income' (i.e. rent), which discourages owners from renting out existing properties or building-to-rent.*
There are so many incorrect statements in this sentence, I don't even know where to begin.
Taxing vacant properties does not punish renters. It "punishes" people who buy properties for speculation, or (as the AirBNB trend is going) attempt to control a piece of limited supply.
The purpose of taxing passive income (lazy landlords, rent collecting) more aggressively is because it is not actually work. It is technically wealth extraction. As a renter, 100 percent of your rent is a "tax" (it's not going to offset any of your long-term assets); and when you pay 70-90 percent of your income in rent as a tax (as many minimum wage workers do), it is massively difficult, if not impossible, to save enough to acquire any assets that help you build wealth. On the landlords' side, it's even easier to use all that extracted wealth (from poor people) to acquire assets that build wealth.
No, collecting rent is not work or a job. Even if you have a whole fleet of illegal immigrants scrubbing the toilets, throwing down cheap carpet, and painting the walls of your units every few years. The moment you enter the territory of needing to pay somebody else to manage your asset (even if it is "just" scrubbing the toilets after your AirBNB tenants or renters leave), you're entering passive income territory.
I rent, by choice. My landlord takes the risk of owning the property, and I pay a premium for that. Something breaks, I make a call and it's his responsibility. Just because some landlords are bad people doesn't mean landlords are bad people in general. I appreciate the benefits I get from renting (and, to be fair, from having a good landlord).
By your logic, owning a small company with some employees is passive income and "bad", because you have people doing work for you. Some small company owners are bad people but that doesn't mean all of them are (and, in fact, we tend to consider them fondly from what I've seen).
My landlord takes the risk of owning the property, and I pay a premium for that.
You pay a premium so your landlord can take risk to get the most lucrative profits? Why, you are a benevolent renter, aren't you?
By your logic, owning a small company with some employees is passive income and "bad",
That is not at all what I said; your reading comprehension needs work. Owning a company with employees[1] means you are responsible for allocating the income into business profits among your employees. Most people who scrub toilets and wash sheets for AirBNB rentals are NOT employees or the owners of the properties. Along the same lines: the right way to treat employees involves giving them part ownership of the company they are working for, and thus they are rightfully entitled to some of the income from business-generating assets. Landlords do not do this. They farm out the work required to manage or maintain the assets, and demand the lion's share of the profit.
The definition of employee had nothing to do with my point. Rather, I was saying that just because someone is in a purely "owner and manager" position doesn't make them a bad person for wanting some (or all) of the profits. The profits are what's left after you pay out what's necessary to run the (company, housing, whatever) and, as owner, you get to decide who/what that money goes to. As long as you're paying the people that do the work for you (and it doesn't matter AT ALL if they're employees, contractors, or other) a fair amount, you're doing fine in my book.
> Why, you are a benevolent renter, aren't you?
To some extent yes. I believe my landlord charges me enough to cover what it costs him to pay for/maintain the place I live, plus some amount for the risk he takes on in owning it (major repairs, etc), plus some amount of profit that I find reasonable. Not all landlords set <some amount of profit> at unreasonable levels.
If I own a house but I have a new job far away and I rent a house there and have a tenant in the one I own, that's a zero-sum game (assuming the rent I pay is equivalent to one I get from my tenant). The owner of the house I'm occupying could even be the tenant of my own house. How do you justify economically taxing the rented home more than if we occupied our own?
Maybe I misunderstand the taxation that BC is applying, but why should 'passive income' be taxed or treated any different to regular income for taxation purposes.
i.e if I earn $100 by working at a job, and $100 through renting out a property, shouldn't I be taxed the same as if I earn $200 through my job instead?
I'm also concerned about how arbitrary the line is between passive and active income. Let's say I rent out a lot of properties. I have legal obligations to maintain those properties. That might be a lot of work. A full-time job, even. Let's say I make a lot of money on investments. I might be ensuring the success of those investments by advising and doing research on / for the companies I'm investing in. Both of those things get called passive income, but they very well might not be in reality.
Me too. Distinguishing between passive and non-passive income seems in any kind of technical, legal seems incredibly difficult. It reminds me of the old "I know it when I see it" definifinition of pornography, which is a terrible definition for a law.
I'm actually really curious about the law now. Stock dividends must be considered passive income. So would interest from your local bank savings account. So would a SaaS app that you set up and basically runs itself with minimal maintenance.
Very true! Given a sharp enough tax rate difference between two kinds of income (or two activities), you just generate a ton of socially-useless work aimed at blurring one into the other.
The term rent selling stats with 'rent' for a reason. The maintenance on any single property is miniscule compared with the rent extracted. Added over many properties, sure, might be a lot of work. But you're also getting a lot of rent.
The bigger part of the problem is the tendency to pass on the tax on passive income to the tenant.
This is also why when someone has enough capital to buy enough properties to extract a full-time wage out of the rent, you can be sure they're also not going to be doing the work themselves.
They'll offload it to a property manager/real estate agent to do all that work.
I don't know why the BC government makes this distinction, but it does. The $100 from working at your job is taxed at a lower rate than the $100 from renting out a property, though I should add that there are various schemes to avoid paying the 'passive income' tax.
This isn't actually the case now is it? Are you confusing corporate income tax with personal income tax? Normally if you're renting a place out you'd be doing it through a hold co. As the rental income would be your main business income it would be tax at the very low Canadian Controlled Small Business rate; not the general rate.
Even if you were to take the unwise, for both legal and tax reason, choice to not use a hold co, income from rent is FUNDAMENTALLY different from regular income. In that, if you make a loss, you can claim it. That's just not possible with regular income. I.e., if you rental unit is unprofitable, it reduces your taxes in general -- potentially applied in future years. This is not the with "active" income.
There's no such tax on 'passive income', it's just taxed as business income, which is exactly what it is and taxed no higher than employment income. It's just not taxed as capital gains nor has dividend tax credits, which it shouldn't be/have.
The only tax that discourages renting out is that the portion of your principal residence used for renting out no longer qualifies for tax-free capital gains.
Considering how almost nobody in BC ever declares this, and barely anything is done to curb it, it's kind of a moot point.
There's no good reason for any of this other than simply being able to take more money from people. It's wrong for the government to pick who wins and who loses, and never works how it's sold.