0

Tax Change Threat To Out Islands' 'Survival'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Family Island realtors are warning that Real Property Tax Act changes will be such "a breaking point" for many second homeowners that it threatens their economies' very "basis of survival".

James Rees, a broker with Abaco Island Properties (Bahamas), told Tribune Business that the tax hikes introduced by the changed definition of "owner-occupied property" would likely exacerbate the damage caused by last year's "crazy" jump in property tax valuations for many on the island.

Describing the "owner-occupied property" change as "huge", Mr Rees said it would affect many of Abaco's Canadian second homeowners because they have to spend at more than six months in their home country as a condition of being able to access public healthcare services.

The Real Property Tax Amendment Bill, which accompanied the 2018-2019 budget, requires "owner-occupiers" to reside in their homes for six months or more per year. This is a marked change from the current Act, which defines "owner-occupiers" as persons who reside in their homes "on a permanent or seasonal basis".

This allows The Bahamas' second homeowner community, many of whom are in this nation for just a few months per year, to be taxed at the "owner-occupier rate" that was reduced in 2016. They currently pay a rate of five-eighths of one percent on their home's value between $250,000 and $500,000, with the portion above $500,000 taxed at one percent. The total sum they pay is also capped at $50,000 per annum.

The Bill, though, proposes to eliminate the term "seasonal basis", meaning homeowners will now have to reside in their Bahamas properties for a minimum of six months per year to retain "owner-occupied" status.

Should they fail to meet this benchmark, their properties face being reclassified as "residential property" or "other property". Since non-Bahamians cannot qualify for the former, foreign second homeowners will fall into the 'other property' category where the tax rates are much steeper.

Real estate classified as 'other property' is taxed at a rate of three-quarter of 1 per cent on its first $500,000, with a 2 per cent rate applied to its value above this threshold. And the 50 per cent 'cap' does not apply, meaning the the tax rate is effectively doubling.

"That's going to be huge," Mr Rees told Tribune Business of the tax increase's likely impact. "I think it's a bad move for the Bahamas. We've just come out of a real estate recession, so to speak, and it's been longer than in the US.

"The last two years have seen an improvement, it's been steady, and for something like this to come into play is going to affect the Out Islands more than Nassau."

While some have been dismissive about the likely effects, arguing that foreign investors should be taxed just as heavily as Bahamians following the 60 per cent VAT rate hike to 12 per cent, the second home market is often the key driver for real estate and other activities in Family Island economies such as Abaco.

Mr Rees pointed out that second homeowners "support the entire spectrum of services" in Abaco, hiring maids, gardeners, caretakers, handymen and the likes of air conditioning repairmen. This, he argued, had a wider 'trickle down' impact for the economy than hotels, who usually performed such services 'in-house'.

"It is the basis of survival in Abaco, the second homeowner, and you're driving them away," Mr Rees warned of the Bill's reforms. "You've done damage with the tax last year. I think it will probably be a breaking point.

"There's a lot of wealthy people here that it will not affect, but a lot of people that come here for five months in a year, if you remove that [owner-occupied status] then a lot of them are going to say it's too much; this is it, and we just have to sell and get out.

"Once you get a lot of real estate coming on to the market the volumes fall, they sell for less and the tax revenues go down as the values are less. Who's going to come in and suck up these properties? They're not going to do it. All the middle class people who worked all their lives, and want a place to go to in winter, they're not going to do that."

Mr Rees was backed by Abaco-based attorney, Frederik Gottlieb, who yesterday told Tribune Business that the "constant changes in law and policy" related to real estate and taxation were starting to unnerve foreign investors.

"I've looked at it," he said of the Real Property Tax Act changes, "and have a preliminary impression it's not going to be good for Abaco and the second homeowner market, and I think it will have a negative impact."

Mr Gottlieb said he had yet to consider all the implications, but added: "My only comment at this time is why amend or change something that doesn't need amending. It's been quite well the way it's set up.

"For a lot of foreign investors, certainly the ones I've spoken to, they're becoming a little concerned by the constant change in policy and laws. It creates a degree of uncertainty that is never very good to attracting foreign direct investment."

Mr Gottlieb described Abaco's economy as "really based" on the second home market, and recalled previous occasions when he had urged the Government not to tinker with it given the economic activity and employment it generated.

"I recommended they leave it well alone, and it was left well alone," he said. "Abaco continued to grow, expand and provide tremendous revenues for the Government. I don't know why they want to tamper with something that's working so well.

"I do fully understand the present administration finds itself in a tough situation as regards the fiscal affairs and economy of the country, but at times it's best to consult a bit more because raising taxes does not necessarily translate into more revenue."

Mr Gottlieb said he was referring to real property tax, rather than the VAT increase, with the latter statement, especially given that the Bahamas was seeking to attract increased foreign direct investment (FDI). "I would tread very carefully not to disturb that," the former FNM MP said.

"I understand the Government has to do what it has to do to arrest the bad situation it inherited, and I do support the Government in all its policy decisions."

Concerns over the Real Property Tax Act change are not confined to Abaco. Pedro Rolle, the Exuma Chamber of Commerce's president and a realtor by profession, said the 'owner-occupied' amendment - combined with the VAT increase - was "too much to digest in one fell swoop".

"It's going to be significant," he added of the change. "That puts the majority of the second homeowners out of the 'owner-occupied' category and straight into the 'investment' category where those homes are going to be considered investments or income-producing.

"I don't know what the full impact is, but we can surmise it's going to be significant... I think we're going to see a lot of these properties undoubtedly going on the market and, because so many are going on the market, it's going to impact the values. Human nature says that's going to happen."

Mr Rolle said much of Exuma's economic revival had been driven by real estate and the second home market, and he added: "If real estate is depressed for any reason that trickle down goes out of Exuma's economy.

"We'll have less properties being purchased, less buildings being built, and every sector of our economy being impacted. I'm not very optimistic about the impact of this Budget on Exuma, either from a VAT point of view or how it impacts on foreign investment. When you combine these negatives it's too much in one fell swoop."

Comments

bcitizen 4 weeks ago

If VAT increase was not bad enough. This is just insane.

0

observer2 3 weeks, 6 days ago

The Bahamas government is spot on target with this RPT increase.

Bahamians need to stop aiding and abetting foreigners from avoiding income tax in the Country of thier citizenship while falsely claiming phoney residency in the Bahamas just because you own a house.

Example. A Canadian who is taxed by Canada on his residency and not citizenship buys a condo out west, does not live in it except for a couple of months in the winter and then uses his Bahamian residency to avoid income tax in Canada. It’s unfair tax competition. No wonder we are always getting black listed.

To add insult to injury this same Canadian then puts that condo on air b & b and rents it out with no hotel licenses in competition to small Bahamian hotel owners who are catching hell with higher taxes and VAT.

0

DDK 3 weeks, 6 days ago

Senator Henfield muttered something yesterday about the Ministry of Tourism having been in touch with Air B&B as concerns collecting a head tax, but he did not clarify whether it IS being collected , and if so, how it is collected and how monitored? It is my understanding that NOTHING is being collected. Henfield further stated that Tourism had not contact VRBO or any other vacation rental web sites.

Another point of concern is that BAHAMIANS who rent out their dwellings to AIr B&B are not able to have their rental proceeds deposited by Air B&B to a bank in the Bahamas as we are not on Air B&B's 'bank list'. So much for the PM encouraging Bahamians to join the on-line rental market.

0

MartGM 3 weeks, 3 days ago

That's not a valid statement. Bahamians who rent on Airbnb, VRBO, Homeaway, etc are able to have their earnings deposited to a Bahamian account. Depending on the bank it can take 3-10 days to be deposited.

0

observer2 3 weeks, 6 days ago

Secondly the Bahamas needs to stop the outdated policy of providing permanently residency in exchange for the purchase of a house.

No developed country in the world does this nonsense. Residency should be awarded on merit. In essence you are selling residency for money which distorts and corrupts the fabric of our society.

If we fail to stop this practice we will be blacklisted again in a coupe of years which will shock our leaders who appear to be ignorant about most things.

0

observer2 3 weeks, 6 days ago

For example, residency based on merit may allow an experienced foriegn police man to live, work and raise his family in the Bahamas without the risk of being deported if he does something unpopular with the impact of greatly reducing crime.

There is nothing in our residency laws which allows such a person to join our society which will greatly benefit our safety and peace of mind.

How does the purchase of a house by a rich foreigner benefit other elements of a good quality of life other than a jobs? Indeed most of the employees of the foreign home owner are other foreign work permit holders - Haitians for gardening, philipionos for house keeping and foreigner offshore bankers for business.

The Bahamians reaping the benefits are rich lawyers,real estate agents, bankers, government through work permit fees. Not the unemployed youth in Bain Town with no future.

In exchange for the house purchase we get some taxes and greater strain on our already dysfunctional education and healthcare systems from all the additional work permit holders coming in and living in Shanty towns to service rich foreigners out west.

The foreigner then rents out his house on air B and B for $1,000 a night and competes with Bahamian hotels providing jobs.

1

Gotoutintime 3 weeks, 6 days ago

Observer2---Looks like you're having a bad day!

0

becks 3 weeks, 6 days ago

Observer2 is not only having a bad day but he is unclear and a bit misinformed on both Canadian tax law and Bahamian permanent residency.

1

sheeprunner12 3 weeks, 6 days ago

The Out Islands are being exploited to the Nth degree by these pirate realtors ...... between their greed and those bankers, FDI crooks, & lawyers who are "quieting" unsuspecting residents of their properties ....... it is a crying shame what realtors, bankers, foreigners, and lawyers are doing to these slices of Paradise.

0

DWW 3 weeks, 4 days ago

The Observer needs to spend more time observing. Sounds like he/she has a personal issue with a neighboring Canadian. He/she has very little understanding of what they are talking about. Canadians pay income tax regardless of residency in the Bahamas. they do this to retain access to the national health service. The vast majority of Canadians happily pay tax because they get a lot of value for money. Talk to a Canadian instead of making up gibberish.

All this fuss about taxing vacation rentals is silly. this is a literal drop in the bucket in terms of income when compared to the incredible incomprehensible tax breaks given to the hotels in this country. Large hotels in this country pay little to no taxes, don't need to pay their electricity bill, get complete duty free allowances, now they don't need to pay taxes via VAT because they pass it onto their patrons and collect a credit back on their expenses. In essence the hotels in this country contribute absolutely nothing to government revenue via taxes. someone please tell me this statement is wrong?
. As Mr. Churchill stated so aptly - a country cannot tax itself into prosperity, it is like trying to lift a bucket while standing in it.
. Raising taxes just takes money out of the economy. If the total economy is $7b and 15% of that is taxes - raising taxes to 20% doesn't mean the total economy grows, it just means that more of that $7B goes to government and less to the people. . All good and dandy if government provides value for money. I think every Bahamian would agree that we do not see value for money. . stop trying bait and switch, demonizing the foreign home owner to take attention away from all the other crap going on.

0

DWW 3 weeks, 4 days ago

If the Bahamas is going to raise taxes on foreign home owners for renting to vacationers, then maybe they should start collecting property taxes from hotels first?

0

sheeprunner12 3 weeks, 4 days ago

BTW ......... Canadians are the worst set of second home owners an Out Island wants to have ........ they are cheap, mean, racist, and clannish.

0

Sign in to comment