Douglas Todd: How to ensure non-residents pay tax on Canadian real-estate profits
2017/04/03 Leave a comment
Hard to understand the blindness or unwillingness of the British Columbia Liberals on this issue. Too many donations from those who benefit from the this lack of regulation and appropriate policies?
It should be easy to ensure that offshore property speculators pay capital gains taxes on their Canadian sales, but the B.C. government has given no sign it’s prepared to make the fix.
Immigration lawyers and Opposition politicians are pressing the province to start an information-sharing system that would make it much harder for house sellers to evade capital gains taxes by claiming they are “residents of Canada for tax purposes,” when they are not. Some critics estimate the tax loss at hundreds of millions of dollars.
This tax avoidance was at the centre of a recent B.C. Supreme Court ruling. Justice Kenneth Affleck ordered notary Tony Liu to pay $600,000 to a house purchaser he had represented.
That was to cover the capital gains tax the Canadian Revenue Agency demanded from the buyer, which should have been paid by the non-resident seller of a $5.6-million Vancouver mansion.
A property seller who does not pay income taxes here is required to pay a capital gains tax on 25 per cent of their profit on a house sale. Theoretically, the law is designed to advantage domestic buyers and sellers over speculators, particularly from offshore.
In practice, the capital gains rule is rarely enforced, in large part, lawyers say, because B.C. doesn’t collect or share up-to-date information on whether property sellers pay income taxes in Canada.
That task is inexplicably left to a real-estate industry “honour system”involving buyers, sellers and their agents, says Vancouver immigration lawyer Sam Hyman, who is among several experts offering a simple solution.
“How complicated is it to require a seller to produce proof they paid their income taxes as a Canadian tax resident?” asked Richard Kurland, a lawyer who produces the immigration newsletter Lexbase.
“This really spotlights B.C.’s unchanging position, which is that it refuses to include on government (property-transfer) forms the question: ‘Are you a tax resident of Canada?’” Kurland said.
“B.C. fails to create data that can be checked by Canada Revenue Agency, by not asking the right question. Instead, the B.C. government has begun asking, ‘What is your citizenship?’ But that’s irrelevant.”
In a city in which 45 per cent of the population is foreign-born, Kurland said, it would be straightforward for CRA to run a data match on people who claim they are tax residents of Canada to see if they are really paying income taxes.
“But if B.C. doesn’t go after the data, CRA can’t do its job.”
When B.C. Finance Ministry spokesman Jamie Edwardson was asked Friday if he thought there were problems associated with B.C. buyers being unable to prove sellers pay income taxes, he declined to answer and said the question should be directed to the Canada Revenue Agency.