Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q. I’m thinking of buying a home in the Bahamas. What are property taxes there like?
The Bahamas is attractive for its tax-friendly laws, especially for foreign investors. Citizens and permanent residents of the tropical hot spot are not subject to taxes on personal income, inheritance, gifts or capital gains.
Property taxes are assessed based on value and for single-family residences, the first $250,000 on owner-occupied property is tax-exempt. For owner-occupied homes between $250,000 and $500,000, the property tax rate is 0.625%, while owner-occupied residences valued between $500,000 and $5 million incur a tax of 1% of the property’s value, with a cap of $50,000.
Property taxes are paid annually and can be made in quarterly installments. The island also has a transfer tax for big-ticket transactions, which is 10% of the property purchase price for transactions over $1 million split between the buyer and the seller.
As an owner of a property valued at $250,000, you can apply for annual residency. An owner of a property valued at $750,000 or greater qualifies you to apply for Economic Permanent Residency and accelerated consideration is given to applicants with investments in excess of $1.5 million.
“A lot of people move to the Bahamas from other countries, make it their main residence and don’t have to pay income tax,” said John Christie, president and managing broker at H.G. Christie in the Bahamas. “Another one of the main advantages is that we also don’t have estate taxes; and if you do your estate planning here, there is no need to pay any money to the government when you pass away, so your loved ones can easily inherit money and property without tax implications.”
Foreign investors are also allowed to acquire residential properties in the Bahamas of up to 5 acres without prior government approval, though they must be registered in accordance with the International Persons Landholding Act. Another perk is that property taxes are not reassessed often, allowing rates to stay the same for many years.
“Historically, property tax values are generally a fair bit lower than the actual value of the house, which is a good thing,” Mr. Christie explained. “In places like Florida and a lot of other states, someone goes into a computer and checks to see if your property’s value has gone up, which results in a higher tax rate. That doesn’t happen here, so you can count on keeping the same property tax rate year after year.
Email your questions to editors@mansionglobal.com. Check for answers weekly at mansionglobal.com.
Alta,
How Canada’s Capital Gains Tax Hike Could Affect Home Sales in the U.S., Caribbean
Wealthy Canadians, many of whom buy property in states like Florida, are likely to reevaluate their investment decisions in light of the changes coming next month
BY CHAVA GOURARIE
| ORIGINALLY PUBLISHED ON MAY 16, 2024 | MANSION GLOBAL
If Canadians do flock back to the U.S. as a result of the capital gains tax hike, Florida has the most to gain.
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Canada is facing a capital gains hike that goes into effect next month, and it could have major implications for home buyers and sellers.
The tax hike, introduced in April as part of Prime Minister Justin Trudeau’s budget, will increase the share of capital gains that is taxable from 50% to 66.7% for corporations, and for individuals on gains above C$250,000 (about US$183,600).
That could potentially have a significant effect on investment decisions for Canadians, as well as for people and businesses looking to invest in Canada. “It’s damaging to Canada’s investment climate, at a time when investment in Canada is badly needed,” said Alex Whalen with the conservative-leaning Fraser Institute based in Vancouver and who has studied the economic impact of capital gains taxes.
“Capital is allocated on a global basis and capital tends to flow to where it’s most wanted,” Whalen said.
Among those investment decisions the new rules could hit are those surrounding real estate, including buying and selling homes in the U.S. and other foreign countries.
Primary homes are exempt from capital gains tax in Canada, but residents are taxed on capital gains internationally, so the sale of an investment property in the U.S. would still be subject to the new tax increase. Another point to clarify is that the hike is also in regard to the inclusion rate—or how much gets taxed—not the tax rate itself, since capital gains are taxed as income.
Last year, there was a significant dip in Canadians buying U.S. homes as prices skyrocketed and interest rates remained elevated, according to data from the Royal Bank of Canada. But those who did buy were paying significantly more. The average sale price of a U.S. home for Canadians was $779,000 in 2023, a 60% jump over the previous year’s $485,000, and the highest in at least 15 years.
If Canadians do flock back to the U.S. as a result of the tax, Florida has the most to gain, as its northern neighbors seem attracted to the sun for obvious reasons. In 2023, more than half the U.S. home purchases by Canadians were in Florida, followed by 14% in Arizona and 4% in California, per the Royal Bank of Canada. Over half the homes are vacation homes or short-term rental properties.
The implications of the hike may lead high-net-worth Canadians to reconsider their investment options, and to look for more business-friendly climates, said Jay Parker, CEO of Douglas Elliman’s Florida brokerage who works with Canadians looking to buy in the state.
“You’re talking about the top 1% of the economy,” Parker said. “Those people are the types of people that invest in other markets and in other countries. [So] it could stimulate additional investment in other markets outside of Canada.”
Tim Rodland, a luxury real estate broker in the Bahamas, said he also expects to see more interest from Canadians given the tax considerations. “We’ve always had a good history with Canadians moving here,” Rodland said. “This is just another reason that the Bahamas looks attractive for Canadians nationals that are now subject to these capital gains taxes.”
The Bahamas has the benefit of offering residency to people who invest more than US$750,000 in real estate, and has a friendly tax environment for high-net-worth individuals, said Rodland.
While Canada’s tax hike may encourage some migration, the concerns are more about the country’s long-term growth, which was already lagging other Organization for Economic Co-operation and Development, or OECD, countries. While Canada’s post-pandemic GDP growth has been on pace with its G7 peers, the combination of population growth and inflation has meant that its GDP per capita is far lower, or fourth lowest of OECD countries, according to one analysis from the Business Council of British Columbia.
The council, along with Canada’s other large business groups have opposed the tax hike, and appealed to Canadian Finance Minister Chrystia Freeland in a letter in early May to scrap the plan, which they said will stifle innovation and growth.
“At a time when the richest are only getting richer, I think it’s fair to ask those people to pay a little more,” Trudeau said in a video defending the hike released Monday. The tax would raise C$19.4 billion and affect less than 1% of the population (just 0.13%), per the government’s estimations, though that doesn’t include the 12.6% of corporations that will also be affected.
Whalen disputes that characterization, however, arguing that it’s not just the richest who will be affected. “Our research has shown in recent data that 38.4% of capital gains in Canada in the year 2020 were paid by people who earned less than C$100,000,” he said.
The hike goes into effect June 25, barring any last-minute changes, and will be applied when Canadians pay their annual taxes before next April.
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