CRA to target real estate ‘astronauts’: leaked doc
A “bombshell” internal federal government document has triggered a new wave of accusations of government inaction in dealing with Vancouver’s housing affordability crisis.
The document, leaked to the South China Morning Post, indicates the Canada Revenue Agency conducted only one successful global audit last year of the so-called “astronaut” millionaire immigrants who buy pricey homes and settle families in Metro Vancouver, but fail to report their worldwide taxable income.
The single overseas audit was one of 339 audits done by the CRA’s Pacific Region that yielded a total of $14.4 million in recovered revenues and $1.3 million in fines.
The document is stamped “protected B” — which indicates that the public disclosure of the report could cause “serious injury to an individual, organization or government,” according to Public Works and Government Services Canada.
The Hong Kong newspaper quoted from a provocative slide presentation to B.C. Pacific Region agency staff last month that said the agency is now beefing up its resources to go after tax cheats, and especially the top 500 files of greatest concern in the city’s overheated housing market.
The additional 85 full-time staff on the West Coast will target the “astronauts” as well as speculators who “flip” properties to obtain a quick profit, then fail to pay capital gains tax and sometimes don’t pay the goods and services tax.
Some, according to the presentation, seek to avoid the GST by claiming the house is a “principal residence” and therefore exempt.
The quick sale is justified in a variety of ways, according to the slide presentation, including: “Dad tripped over a crack in the sidewalk in front of the house (bad omen).”
A CRA spokesman issued a statement Thursday saying the agency’s efforts are not targeting specifically foreign buyers. “The source of funds for the real estate purchases are not the focus of tax non-compliance,” said Jeffrey Lansing. He also noted the agency’s focus on domestic tax evasion and real estate flipping is taking precedence over failure to report offshore income because that’s the area “where the risk of non-compliance was highest.”
A Vancouver academic called the report a “bombshell” that is certain to enrage many British Columbians frustrated that the agency didn’t act sooner given evidence of tax evasion for years.
The Vancouver Sun reported last year that a study by University of B.C. geographer Dan Hiebert found that some homeowners in tony parts of the west side of Vancouver and Richmond were claiming to have income as low as people struggling to survive in Vancouver’s poor Downtown Eastside.
A study by Vancouver mathematician Jens von Bergmann, formerly of the University of Calgary, published first in the South China Morning Post, had similar findings.
“This is a stunning failure on the part of the CRA,” said Simon Fraser University professor Joshua Gordon, who recently completed a study on the impact of foreign investment in Metro Vancouver’s housing affordability crisis.
“It represents gross negligence in this area, since questionable activity in this area has long been suspected.”
Gordon said the former Conservative government needs to take a considerable degree of blame because it “gutted” the agency’s international audit division as part of its budget-balancing initiative.
New Democratic Party MP Kennedy Stewart was similarly enraged.
“This confirms the federal government is leaving local residents to the wolves when it comes to our housing market,” said the MP for Burnaby South.
“It confirms that we have lost control of a significant segment of our housing market to foreign buyers, many of whom appear to be cheating our tax system.
“Worse still, the government has known about this problem for years, failed to take the right actions, and what limited actions they have taken have badly failed. It is scandalous and the government needs to start treating this situation as the emergency it is.”
Vancouver-Point Grey NDP MLA David Eby said the CRA has been asleep at the switch, failing to identify and penalize so-called low income owners of expensive houses that have avoided paying taxes.
The additional 85 auditors and support staff for tens of thousands of households that need this type of complex audit work is “grossly inadequate,” said Eby, who has been a vocal critic of federal and provincial government action on the overheated Vancouver housing market.
In a written statement, the B.C. government said it supports the CRA’s efforts and is already sharing information, but did not respond to a Vancouver Sun question on whether it believed the CRA effort should be beefed up even further.
B.C. Finance Ministry spokesman Jamie Edwardson said Finance Minister Mike de Jong’s raised the tax-evasion issue last month with Morneau, the federal finance minister. That helped create a working group of federal, provincial and municipal officials examining this summer how to share more information to prevent further tax evasion in real estate, said Edwardson.
Also in a written statement, Vancouver Mayor Gregor Robertson said he hopes the working group will result in concrete steps to strengthen real estate market oversight and rein in the Vancouver housing market. He said the CRA could use more resources to track, audit and enforce tax rules.
“With unregulated, speculative global capital flowing into Metro Vancouver, we are seeing housing prices completely disconnected from local incomes,” he said.
The additional staff for the B.C. regional office include 50 income tax auditors, 20 GST auditors, and 15 “workload development officers” to assist them, according to the June presentation.
The document said only one B.C. audit was done in the fiscal year ending March 31, 2016, on worldwide income, involving a total of 172 hours of work. It generated just $26,722 in additional taxes, or $155 per hour of work, and resulted in a $10,664 fine.
Auditors spent more than 11,000 hours during the last fiscal year looking at 93 flips, uncovering $3.4 million in additional tax revenue or
It represents gross negligence in this area, since questionable activity in this area has long been suspected.
$306 per audit hour. The probes led to 36 fines totalling $883,325.
CRA staff went after 20 instances of suspected capital gains tax evasion, generating $824,750 in tax revenue (or $297 an hour) and three fines totalling just under $30,000.
In total auditors spent almost 27,000 hours on 339 files, generating $14.4 million ($537 an hour) and triggering $1.3 million in fines.
As of April 29, 2016, there were four audits underway on people allegedly failing to report worldwide income, with another 283 involving probes of dubious flips and alleged failures to report capital gains or pay the required GST.
The slideshow says any additional enforcement work “will not address the major concerns” involved in the affordability issue.