British Columbia will soon force people who use corporations or trusts to buy property in the province to disclose more complete information, a move the government says will close a loophole that has allowed speculators to evade real estate taxes.
Starting Sept. 17, new property-transfer-tax forms will require people to report additional information, including their name, citizenship and social-insurance number, if they purchase residential or commercial real estate through a corporation or trust. The new reporting requirements will have exemptions for charitable trusts and certain corporations, such as hospitals and schools.
“Not only is tax evasion in real estate fundamentally unfair, but it’s driving up the cost of housing for people who live and work in our communities,” Minister of Finance Carole James said in a news release issued Wednesday. “These changes give authorities another tool to make sure people are paying the taxes they owe.”
The changes are part of a series of steps the government is taking to address tax fraud in the real estate market that includes tracking presale condos, sharing homeowner grant information with the federal government and boosting the ability of auditors to act on tax evasion.
Two years ago, a Globe and Mail investigation detailed how one prominent real estate speculator had millions of dollars flow through his personal bank accounts or those of his companies as he flipped more than two dozen properties in and around Vancouver during the five years prior. In these transactions, he and his companies became the hidden – the legal term is “beneficial” – owners of certain properties, even though absentee foreign clients bankrolled everything from the down payment and mortgage payments to property-related taxes and other expenses. The homes and mortgages were registered in the names of his clients, their companies or spouses.
The financing his companies received from those clients came in the form of loans that were not taxable, and that fell within what’s known as “shadow banking” – an unregulated system that has exploded in popularity in China and appears to have gained a toehold in Canada. Such “peer-to-peer” loans, as they are also called, sidestep banks entirely and promise lenders significantly higher returns than they can get elsewhere.
On Wednesday, Denis Meunier, former deputy director of FinTRAC, the federal agency that analyzes money laundering, praised the new rules, but said the province must issue harsh penalties for providing false information in such an inflated property market.
“Think like a criminal: If you’re sitting on a $2-million property and someone [incorrectly] certifies who the beneficial owner is and the fine is $5,000, do you really care?” Mr. Meunier said. “If you’re that rich, you’ll pay the $5,000.
“It needs to be an incentive that exceeds the cost of doing business and, to me, that includes jail time.”
Ron Usher, a lawyer and member of the independent panel that guided B.C.'s overhaul of how it regulated real estate, said the new rules could help shed more light on how global capital flows into the province’s various real estate markets. However, he said the provincial government currently has no way to get similar information from property sellers, which represent a concerning backlog.
“How does all this money get into this system? That’s just part of the overall general concern people have,” said Mr. Usher, who also acts as counsel to the Society of Notaries Public of British Columbia.
He added that the it was curious B.C. made the changes now considering the government is still in consultations as to how it will create a new, publicly accessible registry of who owns real estate in the province.