By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Realtors yesterday said it was “about time” that the Government doubled the annual real property tax cap and sought to close “loopholes” that enable high-end condominiums in hotel rental pools to largely avoid tax.

They reacted positively after Prime Minister Philip Davis QC, in unveiling “some new and very targeted fees”, announced that the maximum annual real real property tax payment will be increased from $60,000 to $120,000 - a 100 percent jump - as part of the 2022-2023 Budget’s efforts to increase yields from multi-million dollar real estate.

Noting that real property tax revenues remain almost 40 percent below the $280m in total annual billings, Mr Davis also revealed the imposition of a “minimum tax fee” - equivalent to 75 percent of the subject unit’s assessed value for property tax purposes - as a means to extract revenues from condos, apartments and other high-end real estate that are normally exempt from the latter levy because they are placed in hotel rental pools.

He explained that this “minimum tax fee” will only kick-in if the unit’s real property tax value is greater than the VAT levied on the rental income generated. This meant, Mr Davis said, that if for example a property was assessed for $100, and failed to generate VAT equivalent to or greater than this value, its owner would pay $75 as the “minimum tax fee” to the Government.

“We are trying to close the loopholes we have, and for high-end properties this is one way of doing it,” Mr Davis told the House of Assembly during his Budget presentation. “There is a cap on real property tax. We are going to increase that cap from $60,000 to $120,000. To reach that level, your house has to be valued at over $20m.

“We are now imposing a minimum tax fee of 75 percent of the real property tax assessment for high-end properties, which are exempt from property tax because they are in a rental pool, if these properties do not generate VAT revenue equivalent to the real property tax assessment. If part of a rental pool, and your condo and apartment is being rented, we expect VAT to be paid on the rental.

“To demonstrate that we are serious about collecting property tax, we are updating the law to simplify the process by which we can take action against all classes of property owners, with the exception of Bahamian owner-occupied properties.”

The “minimum tax fee” will likely capture unit owners in high-end developments such as Albany and Baker’s Bay where such properties are placed into a rental pool and leased out to other visitors when the proprietor is not there. Tribune Business sources have revealed that government officials privately admit capturing taxes on such arrangements is problematic because it is almost impossible to determine when such units have been placed in the rental pool and/or are being leased.

Christopher Armaly, a prominent broker and appraiser, who previously called for the annual $60,000 annual real property tax cap to be raised to around the level now being set by the Government, told this newspaper of the move: “It’s about time, don’t you think, for multi-million properties?”

Legislation giving effect to this change, which was tabled in Parliament yesterday along with the Budget, asserts that moving the maximum annual payment to $120,000 “only increases the tax for properties valued over $6m”. Mr Armaly added: “It’s a start in the right direction. It certainly puts it [the threshold] a little more in line with the $100,000-$120,000 a year area, which should be where it starts.”

Mr Armaly previously told this newspaper that the present $60,000 annual real property tax cap that results in middle class Bahamians effectively paying a higher tax rate than persons with homes valued $10m and above. 

All owner-occupied homes, meaning those residences used exclusively as dwellings by their owners, enjoy a tax break on the first $250,000 of their property’s valuation. A rate of 0.625 percent is applied to the next $250,000, and this increases to 1 percent for the remaining portion of the valuation above $500,000.

However, the $60,000 current maximum limit on annual real property tax payments effectively leaves a $40m property owner’s tax rate at just 0.15 percent. This is four times’ below the rate applied to the $250,000-$500,000 portion of a property’s worth. Raising the cap to $120,000 will double this rate to 0.3 percent, which is still below that being levied on middle class Bahamians

Applying the $60,000 cap to properties valued at $30m, $20m and $10m results in effective tax rates of 0.2 percent; 0.3 percent; and 0.6 percent respectively. These will now double to 0.4 percent; 0.6 percent; and 1.2 percent, with the latter two now almost matching or exceeding the property tax rate paid on owner-occupied residences valued between $250,000 and $500,000.

“Should you and I pay the same rate as the mega wealthy?” Mr Armaly reiterated yesterday. “I’m not asking for the wealthy to be over-taxed. I’m asking for people like you and me to be taxed at the same rate.”

Meanwhile Mario Carey, the Better Homes and Gardens Real Estate MCR Group Bahamas principal, yesterday praised the Government for seeking to eliminate tax loopholes enjoyed by high-end property owners with its “minimum tax fee” concept.

“I think the Government is trying to find a way to level the playing field and make sure that everybody contributes to the cost of running the country,” he added. “I think that’s what they’re trying to do, and maybe this is a creative way to do it. 

“Based on various Heads of Agreement that have been signed, and we don’t know what the contents are, we know certain developments have been enjoying exemptions while other people are carrying the full burden of paying tax. Most of those Heads of Agreement, you cannot necessarily change them, which is not a good thing - they should be more flexible - but to make everyone pay their fair share, that’s going in the right direction.”

Mr Carey also hailed the reduction of real property tax rates for commercial properties worth more than $500,000 as “a brilliant move”. The rate will be halved, falling from 2 percent to 1 percent on buildings valued between $500,000 and $2m, while those worth more than that sum will enjoy a 1.5 percent rate.

“The Bahamas has always prided itself on having a strong middle class,” he added, “and we need ‘Mom and Pop’ shops. We’re in a fragile place if we lose our middle class. We cannot keep squeezing them. We need to have a stable middle class, and unfortunately it’s difficult to run a business.”

Mr Davis said yesterday: “We want to encourage investment by Bahamians, which is why we have reduced real property rates for commercial property, which will come into effect for the 2022 tax year.”

The Government also yesterday moved to increase the portion of an owner-occupied property’s value that is exempt from real property tax from $250,000 to $300,000, with the change set to take effect from July 1 when the Budget is passed into law.