FROM DAVID RALPH
Gov't makes good on
property tax u-turn - 5 June 2019
By NEIL HARTNELL Tribune
Business Editor nhartnell@tribunemedia.net
• Restores `seasonal
basis' for second homeowners
• Reverses `owner
occupied' change in last budget
• Move not highlighted
in budget presentation
The government is
reversing taxation policy that threatened to destabilize the Bahamian second
home market with legal reforms tabled alongside the 2019-2020 budget.
Marlon Johnson, the
Ministry of Finance's acting financial secretary, yesterday confirmed that
included in the Real Property Tax Amendment Bill 2019 is a clause that reverts
to the definition of "owner-occupied property" in effect prior to
last year's Budget.
The change makes good on
a promise given by KP Turnquest, deputy prime minister, some nine to ten months
ago after the government inserted a previous requirement that homeowners must
reside
in their property for at
least six months annually to qualify as an "owner-occupied property".
The Minnis
administration reversed course after an outcry from second homeowners, realtors
and other Bahamian businesses and industries that rely heavily on this market.
They argued that this requirement would both push property owners into a
higher-rate tax bracket and eliminate the $50,000 cap on their annual payments,
resulting in major tax hikes.
This, homeowners and
local industries added, would prompt existing owners to sell while also
deterring potential buyers, thereby undermining economic activity - especially
in the Family Islands - while also reducing the government's tax take.
The Real Property Tax
Amendment Bill attempts to allay these fears, and restore market certainty, by
reintroducing the words "seasonal basis" to the definition of
"owneroccupied property" and restore second homeowners to the lower
tax bracket.
The Bill's "objects
and reasons" section, outlining the rationale for its tabling in
Parliament, says the change is designed "to alter the definition of
'owneroccupied property' to change from `resides in such property exclusively
as a dwelling house on a permanent basis that is six months' or longer to
`resides in such property exclusively as a dwelling house on a permanent or
seasonal basis'."
Mr. Johnson, affirming
that the restoration of "seasonal basis" was designed to fulfill the
promise given by the deputy prime minister last August, told Tribune Business
that the reversion would have no "substantial impact" on government
revenues.
He added that the Public
Treasury's income from this source was likely to see "a marginal
increase" as a result of lifting the real property tax "cap"
from $50,000 to $60,000 in the 2019-2020 budget.
"When we put in the
definition originally it was just to clarify seasonality," Mr Johnson said
of the change with last year's budget. "We will continue, at the technical
level in the ministry, to look at that qualification and how best to state
seasonality.
"It wasn't an
attempt to glean any special revenues from that move. We'll continue to look at
that during the year to find ways to better define 'seasonality'."
The return to the
previous definition was not highlighted in the 2019-2020 budget communication,
and instead buried among the mass of legislative changes required to give
effect to the Minnis administration's tax changes and reforms. While concerns
over the negative economic fall-out won the argument, the government's pledge
to reinstate the "seasonal basis" definition last year came under fire
from its political opponents and other critics on the basis it was granting a
"tax break" to wealthy foreigners who could most afford to pay.
For instance, the Lyford
Cay Property Owners Association last year warned the government that the
"insensitive and irrational changes" to the Real Property Tax Act's
"owner-occupied" definition were starting to undermine confidence
among the very high-end North American investors this nation wants to attract.
The association's
chairman, Henry Cabot Lodge 111, said tax rates that were "too high and
unpredictable" would lead to consequences impacting "every sector of
the economy that services Lyford Cay", as existing homeowners sought to
exit and new buyers were deterred.
Now, the latest change
clarifies in law that The Bahamas' second homeowner community - many of whom
are in this nation for just a few months per year - will not fall out of the
"owner occupied" category and lower tax rates that were reduced in
2016.
Nor will they face the
higher tax rate, which the government previously doubled from one percent' to
two percent on the portion of a property's value above $500,000. Mario Carey,
founder of Better Homes and Gardens Real Estate MCR Bahamas Group, yesterday
told Tribune Business that the government's move will boost market confidence
and give participants greater certainty.
"I think it will
give people comfort in knowing that our government is not counting days (how
long people are here)," he said. "When you reside here, live here, we
don't count days. You don't want to confuse that; you want to leave it open so
people have flexibility.
'Seasonal basis' is the
key term.
"I think it's good.
I think the market will respond positively. I think it will give us some
confidence in the market that they're holding true to their promise."
One realtor, speaking on
condition of anonymity, agreed of the change that "this is how it should
be", but said second homeowners who earned rental income from their
properties needed to pay VAT on these earnings.
They added: "I'm
glad they're doing it. They should never have messed with it previously, but
they did. It's going to help. You can reside in your home but will still have
to pay VAT on rentals."
