Douglas Todd
Vancouver Sun
It’s time to end the “honour system” involving B.C. property purchases.
Immigration and tax specialists say Metro Vancouver’s soaring house prices are being fuelled in part by people not telling the truth when they buy and sell houses. A side-effect is they are cheating B.C. and Canada of billions of dollars in tax revenue.
Experts are recommending reforms to the property transfer system in light of complaints that Metro Vancouver’s explosive housing prices are significantly driven by the unregulated global movement of billions of dollars, most recently by people from Mainland China, which is on the verge of becoming the world’s largest economy.
One of the first problems to fix in regards to real estate transactions in B.C. is to properly monitor whether property sellers are being honest when they say they are, or are not, residents of Canada as defined under the Income Tax Act, say Vancouver tax specialist Samuel Hyman and immigration lawyer Richard Kurland.
Even though sellers are expected to tick a box on real estate industry forms stating whether they are Canadian residents for income tax purposes, the specialists say there is almost no bona fide monitoring of where the people live and pay taxes, which opens the door to fraudulent property transfers and tax evasions.
As it now stands, non-residents who don’t principally live in Canada but claim they do so on real estate forms are evading paying tax on 25 per cent of their capital gains.
“People who are not a resident in Canada for tax purposes are supposed to pay up to 25 per cent tax on the profit from the sale of their property,” says Kurland.
“People who live and file taxes here don’t have to pay these taxes, which should give an advantage to local buyers. But, when Canada Revenue Agency doesn’t collect the tax, locals lose the advantage they were supposed to enjoy. Canada’s tax system is supposed to favour locals over foreigners, but the system does not work if B.C. fails to make people accurately declare their tax residency on the form.”
In this era of mass trans-national migration, Kurland said, wealthy people around the world are paying professionals to weave them through a complex web of regulations surrounding immigration, residency requirements, real estate and taxation.
In some cases, Kurland said, the professionals are taking advantage of Canada’s tax loopholes so their trans-national clients “can have their cake and eat it too.”
Some, for instance, are claiming to real estate officials they are Canadian residents to buy and sell houses (avoiding capital gains) and to maintain their status as permanent residents.
But then some of the same people, at the same time, Kurland said, are claiming to Revenue Canada they are not residents under our tax law so they don’t have to declare their global income and property holdings and pay taxes in Canada.
Solving such problems, says Hyman, would require no new Canadian tax laws, no new taxes and no new restrictions on ownership, domestic or foreign.
The reforms would simply require more rigorous enforcement of claims by sellers and buyers about where they pay their taxes (regardless of whether they have a Canadian passport).
The reforms, which mainly require better information sharing between governments, will illuminate “market forces pushed by tax evaders, money launderers and economic fugitives parking ill-gotten gains in B.C. real estate,” Hyman said.
In short, Hyman’s proposed new rules would require any declaration that sellers make about where they live and pay taxes to be immediately cross-checked with Immigration Canada and the Canada Revenue Agency.
That way, since it’s the job of both Canadian immigration and tax officials to monitor where someone lives, all residency claims on real estate forms can be confirmed or exposed within days.
Explaining the process in more detail, Kurland said that whenever a person in B.C. sells a house or condominium, “there’s a box to tick” on standard real estate forms in regards to whether the seller is a “resident of Canada for tax purposes.”
If a seller ticks the “yes” box, it means by definition he or she lives in Canada more than six months of the year and is paying income taxes in Canada.
But the real estate information on residency is never cross-checked with Immigration Canada or the Canada Revenue Agency. That means that the government is, by and large, trusting sellers to be honest.
The tax implications are enormous for Canada, however, especially in a market where wealthy trans-national migrants are routinely selling houses in the $3-million to $5-million range.
Why would governments allow this giant loophole?
“It’s a mystery,” Kurland says. “The only logical conclusion is that the B.C. government fears a reduction in the number of buyers and sellers. These reforms would negatively impact only foreign buyers, who are the crew in the spotlight these days.”
It may be worth mentioning that in this often-confusing trans-national realm of property speculation, globalized wealth and multiple passports, Kurland reminds us that where someone says they are a resident for tax purposes is different from where they might also be a citizen.
“Citizenship is as relevant as hair colour when it comes to selling property,” Kurland says, “because you can be a Canadian citizen and still not be a resident in Canada for tax purposes.”
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