New Canadian banking rules called 'game changer' for real estate tax evasion
JULY 27, 2017 9:51 PM
By Sam Cooper
New Canadian banking rules that took effect July 1 are a “game changer” that could help governments in Victoria and Ottawa fight real estate tax scams exploited by foreign buyers, says a prominent B.C. immigration lawyer.
As of July 1, Canadian banks must confirm detailed information on non-resident clients — such as name, address, date of birth and taxpayer identification numbers — in order to report to the Canada Revenue Agency on all financial accounts held by non-residents of Canada.
The new, so-called “Common Reporting Standard” will allow dozens of countries including Canada and China to share information about bank accounts held by, or for the benefit of, non-residents, in a system designed to fight global tax evasion and improve voluntary tax compliance, the CRA says.
A number of experts, including immigration lawyer Richard Kurland, say that Canada loses significant tax revenue because B.C.’s real estate transaction system does not 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.
It is believed many non-residents who don’t principally live in Canada, but claim they do, are evading paying tax on 25 per cent of their capital gains on home sales, Kurland says. These tax dodgers tend to be speculative Metro Vancouver investors who own or flip multiple expensive properties, according to Kurland. A common scam is claiming to live in a home that is actually vacant, he said, and claiming principle residency tax exemptions. It’s also believed that some real estate professionals help clients fake residency claims, or turn a blind eye to tax dodging tactics, Kurland and other legal experts told Postmedia.
But now the CRA will automatically have the data needed to confirm whether non-resident property sellers are being honest, Kurland says, rather than completing “whack-a-mole” real estate audits.
The CRA also will be able to share this client banking information with other countries that join the common reporting system. These international reporting changes were made partly in response to disclosures in recent years about global tax haven and offshore banking strategies of wealthy investors and politically connected elites.
‘Lifestyle audits are hard to do when the person (selling a home) and the cash are gone, and there’s nothing to seize,’ says immigration lawyer Richard Kurland. ‘But using CRA algorithms and artificial intelligence means this is fixable, if you have the data. We’re looking at a game changer.’ STUART DAVIS / PNG FILES
Kurland says that if the CRA were to proactively work with B.C.’s provincial government in sharing real estate data and using computer programs to search for red flags, tax compliance would rapidly improve and speculation would fade in Metro Vancouver’s overheated market.
“Lifestyle audits are hard to do when the person (selling a home) and the cash are gone, and there’s nothing to seize,” Kurland said. “But using CRA algorithms and artificial intelligence means this is fixable, if you have the data. We’re looking at a game changer.”
An even better reform, Kurland says, would be if the CRA’s new data pool could be automatically matched with a modernized B.C. title transfer system that would require a seller to register at the time of a sale, whether they are a Canadian resident, or non-resident, under the Income Tax Act.
Already sellers make these declarations on standard real estate forms by checking a box. But these forms are rarely confirmed, unless a property sale is investigated by the CRA, according to Kurland.
“The honour system just isn’t working,” he said.
As an added measure, real estate professionals would need to verify client residency with proofs such as income tax forms, Kurland said. They would then be liable for clients’ reports. This would deter some of the bad apples who are believed to be helping clients cheat Canadian taxpayers.
“The CRA is supportive of any provincial regulation that would bring increased oversight to real estate transactions completed in the province,” spokeswoman Shannon Ker said, in response to questions about reforming B.C.’s title transfer system.
The NDP’s former housing critic, MLA David Eby, who is now B.C.’s attorney-general, campaigned on ideas to combat suspected tax evasion by foreign speculators in B.C. real estate.
The new NDP government has not yet responded to Postmedia’s questions on whether the party supports the reporting reforms suggested by Kurland.
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