Ottawa touts ‘zero tolerance’ for tax evasion
Report on ‘poor’ neighbourhood full of mansions sparks calls for more robust enforcement
OTTAWA — The Canadian government takes a “zero tolerance” stand on tax evaders and is currently conducting audits on property owners in B.C., according to the Canada Revenue Agency.
But Vancouver immigration lawyer Samuel Hyman said neither the federal nor B.C. governments are doing enough to crack down on people who pay skyhigh prices for Canadian houses but don’t pay taxes on their global income.
That goes for both overseas property owners who are avoiding taxes legally — by becoming non-residents for income tax purposes, for example — and for those residents acting outside the law by not reporting global income, Hyman said.
He was responding to a Vancouver Sun report Monday regarding the upscale Richmond neighbourhood of Thompson, which has both a high number of mansions and an unusually high poverty rate. Former Richmond mayor Greg Halsey-Brandt told The Sun’s Douglas Todd that the problem is a result of wealthy property owners not fully reporting and paying taxes on their global income.
Federal official Magali Deussing said Tuesday that the Canada Revenue Agency conducts “lifestyle audits” and “suspicious real estate practices” and is looking specifically at activity on the West Coast, but she would not elaborate.
On Monday a spokesman for B.C. MP Kerry-Lynne Findlay, Canada’s minister of national revenue, cited various actions to show that Canada takes a “zero-tolerance” approach to tax evaders.
While some experts note that many so-called “poor millionaires” or “astronauts” are actually living within the letter of Canadian tax law, Hyman said laws that allow Canadian residents to avoid paying their fair share must be changed.
“To permit foreign nationals to acquire permanent resident status for themselves and their dependents without becoming resident for income tax purposes for the duration of their (permanent resident) status is an abomination,” he wrote.
“It creates an attachment disorder for those who would obtain all of the benefits of Canadian residence and a pathway to precious citizenship for themselves and/or their dependents without their assuming any responsibility to contribute their fair share, based on their worldwide income as all resident Canadians are legally required to do.”
He rejected the government’s assurances that Canada has made significant headway in cracking down on tax cheats.
Foreigners are parking “their ill-gotten gains in B.C. real estate because other Pacific Rim countries like Australia, New Zealand, and the USA … enforce their anti-money laundering rules stringently while Canada does not,” he argued.
Hyman said the B.C. government, meanwhile, should be pressing Ottawa to ensure greater tax compliance because avoidance results in a reduction in B.C.’s share of the federal tax haul.
The lack of tax revenue, in turn, has forced governments to look for new revenue sources, like the proposed sales tax hike to pay for transit expansion in Metro Vancouver.
Carter Mann, a spokesman for Findlay, boasted Tuesday of the Conservative government’s measures to protect the system’s integrity. “Our government has zero tolerance for tax evasion.”
Among the anti-tax avoidance measures the government cited by Mann:
• In 2013 Ottawa introduced new reporting requirements for Canadian taxpayers with foreign property holdings to ensure the disclosure of more detailed information.
• Last year the government launched the Offshore Tax Informant Program, “which allows the CRA to pay individuals who provide credible and specific information about major international tax non-compliance.”
• And earlier this year financial intermediaries, including banks, were required to report international electronic funds transfers of $10,000 or more to the CRA.
Tax and immigration experts, meanwhile, say that many socalled “poor millionaires” — also known as “astronauts” — are not necessarily dodging Canadian tax law.
A multimillionaire foreigner could buy a mansion for his spouse and children, let them live in Canada as permanent residents required to pay income taxes in Canada, while he or she continues to live and work primarily overseas.
The “provider spouse” can send the money to their partner in Canada tax-free, since he or she is presumed to be already paying tax in their own jurisdiction, taking advantage of a tax treaty struck between Canada and China in 1986.
“The deal is you can feed your wife and kids (in Canada) without income tax consequences,” said Vancouver lawyer Richard Kurland.
“You can send small fortunes to your wife and kid as a nontax resident of Canada, without income tax consequences.”
Kevyn Nightingale, a tax specialist at accounting firm MNP, described a number of scenarios whereby a wealthy property owner in Canada can report low incomes.
They could file their Canadian tax return as non-residents, meaning they only report Canada-source income.
And a provider spouse living overseas could fund the Canadian-based spouse, who is a Canadian resident for tax purposes, with several million dollars invested in government bonds, yielding a relatively small amount that wouldn’t incur heavy Canadian taxes.
Nightingale said there are also people who are residents of Canada for tax purposes, but simply don’t report their overseas income.
“I can’t tell you how many cheaters are out there, but in a self-reporting system, foreign income is always going to be hard to catch,” Nightingale told The Sun.