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Chinese investors avoid taxes through Canadian real estate

Migos

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http://www.theglobeandmail.com/repo...buying-real-estate-in-canada/article26683767/

Great investigative journalism by G&M. It's too bad most papers aren't actually doing real journalism anymore.

Some of the highlights:

-Chinese buyers claiming no income while simutaneously buying multi-million dollar houses with annual property tax bills in the tens of thousands

-Chinese buyers will hold the properties in the names of their wives or children to avoid capital gains taxes. They'll also hold property in corporations because it allows them to avoid land transfer taxes when selling (loophole in B.C.'s tax code).

-Another reason for having wives, children, or corporations holding the property is that they don't want their names to be listed in the land registry. This is likely because they don't want the Chinese government to find them since many are corrupt former party members who absconded with funds illegally.

-Further to the above, many put assets in others' names so that if China goes after them, their wealth is stored elsewhere.

At some point you have to think Canadians will insist on a stop to these practices. What will the impact be to real estate, particularly in a market like B.C. that is driven by foreign demand?
 

cruzin4u

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Doesn't this happen with most people? I mean, the whole "putting the names in their wives or children" - it's not just the Chinese that do that, but rather anyone that is or attempting to "flip" a property or rather anyone that wants to avoid capital gains.

It talks about corrupt members who absconded funds illegally - the same happens with Iranians, Russians and so forth.

There is way too much dirty money around, but you know what - I am going to live my life and let them have their fun.
 

James

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Individuals have been doing this for years. A lot of people, especially those with businesses, will register their property under their spouse's name. It happens a lot more than people may think. There's a smaller group of individuals who register their home under a holding or investment company. The primary difference between these individuals and the ones in the Globe and Mail article is essentially their place of origin. This article is focusing on foreign ownership, not necessarily Chinese, but given that this piece was focusing on Vancouver, it's obviously going to be Chinese-based. The issue isn't so much with China but really with the tax system, as stated in the article. These loopholes allow not just foreign investors, but Canadian locals, to take advantage of certain tax saving benefits. The focus really should be the Canadian government.
 

Admiral Beez

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If it's not against the law, it's not really a loophole. The law allows me to register my property is such a manner that I pay less tax. Any accountant would recommend this option to his clients.
 

Riverdale Rink Rat

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If it's not against the law, it's not really a loophole. The law allows me to register my property is such a manner that I pay less tax. Any accountant would recommend this option to his clients.

I don't quibble with your conclusion, but a loophole, by definition, is a legal tax avoidance strategy. Those against whatever wrinkle in the tax code allows for paying less taxes call them loopholes because it's their pejorative for the practice. I'm sure PWC or KPMG would call them 'tax reduction options.'
 

Riverdale Rink Rat

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If I was the Chinese government, I'd be pretty angry about this -- if these individuals were also claiming the income in China that they're claiming in Canada during a divorce case. However, I'm betting Mr. Sun is trying to stick it to Ms. Sun, and Ms. Sun is trying to get a better divorce settlement by 'divorce court venue shopping' to the (I assume) better divorce laws of Canada. As long as they're paying their property taxes (which they seem to be doing), I'm not sure there's much to see here.
 

mig174

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Predictable response to this on the board. Clearly RE agents or people otherwise profiting from such money laundering.

No mention of the fact that homeless population in Vancouver has exploded. No care for the fact that Canadian businesses in Vancouver can't retain/recruit people cause they can't pay them enough to live in Vancouver and stay competitive. Not giving a shit for the fact that Canadian household debt is near US 2007 levels because how else can hardworking Canadian families afford a dwelling that their baby-boomer parents bought for a fraction of the price?

Most Canadians lose out. Canadian economy, save for the construction sector, loses out.

A select few who have invested and want to protect their profits will of course welcome this with open arms.

Disgusting.
 

Riverdale Rink Rat

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Predictable response to this on the board. Clearly RE agents or people otherwise profiting from such money laundering.

Worse, actually. I'm a banker / wealth manager. Real Estate agents' ethical standards was too high a bar. ;)

No mention of the fact that homeless population in Vancouver has exploded.

The homeless population, anywhere, and particularly the hardcore homeless, are a terrible, intractable problem. But it's not connected in any way, shape, or form to the cost of single detached homes in West Vancouver.

No care for the fact that Canadian businesses in Vancouver can't retain/recruit people cause they can't pay them enough to live in Vancouver and stay competitive.

Now, this is an interesting thought. Is it true? Is there even anecdotal evidence of, say, HSBC having trouble getting employees to take promotions to Head Office in Vancouver as the housing is too hot and they'd rather stay in Saskatoon or Toronto?

Not giving a shit for the fact that Canadian household debt is near US 2007 levels because how else can hardworking Canadian families afford a dwelling that their baby-boomer parents bought for a fraction of the price?

Well, I sold my house and will rent when we get back to Toronto. I'd suggest that those 'hardworking Canadian families' do the same, or do a deal with the in-laws. Are you saying they'll reject the inheritance once their baby-boomer parents die?

Most Canadians lose out. Canadian economy, save for the construction sector, loses out.

All Canadians, even if they can't afford to own a SDH in Vancouver, benefit from an injection of capital from outside the Canadian economy. Full stop.

A select few who have invested and want to protect their profits will of course welcome this with open arms.

Anyone has the ability to invest or spend their income. I would advocate investing in something other than West Vancouver SDH as that asset is overpriced, IMHO. To say that someone 'deserves' to own a house anywhere because their parents did is kind of ridiculous, isn't it? I don't deserve a horse just because my dad was a rancher.

Disgusting.

I'm sorry, but I think that your reaction to this story and thread speak more about you than the actual 'story'.
 

Migos

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It's a basic principle of tax law that a person can arrange their affairs in such a way as to pay as little tax as possible. As for not having the property in the "owner's" name, you'd be hard pressed to find a business owner, accountant, lawyer or other professional or anyone who might be sued for some reason related to their business who has a property registered in their own name.

Except they are breaking the law...

If they are non-residents, they need to pay capital gains tax as they can't claim the personal residence exemption.

If they are residents and have family living in Canada, they need to file resident tax returns and report ALL income.

Hence, these people are breaking the law.
 

James

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Objectively, I reiterate that this is a tax issue. Non-residents who own property under their name will definitely pay capital gains tax upon the sale of that property.

What is happening here is that the individual is purchasing property for their family while their family is living here (i.e. in Vancouver) as residents. This is legally their primary residence and is titled as such. When the property is sold, it is sold by the family member as their tax exempt primary residence.

The transfer of money can be thought of as a monetary gift. Whether one is a foreign investor or a local Canadian, oftentimes parents help their kids or other family members purchase homes via contributions to the down payment.

On the issue of the reporting no or low income, one common example is a student whose parents support them while they are in school. The parents would cover their living expenses during their residency, no matter how expensive those expenses might be.
 

yyzholocaust

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My Chinese landlords are so idiotic and incompetent I would say it's difficult to fathom them successfully pulling off any sort of tax evasion scheme, but it would be foolish to underestimate the power of unfettered human greed.
 

Hank

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It's a basic principle of tax law that a person can arrange their affairs in such a way as to pay as little tax as possible. As for not having the property in the "owner's" name, you'd be hard pressed to find a business owner, accountant, lawyer or other professional or anyone who might be sued for some reason related to their business who has a property registered in their own name.

It's more than that, though. They don't just have the property owned by the corporation; if they did, the corporation itself would have to pay tax (capital gains and land transfer) when the property was sold. Instead, they have title registered in the name of the corporation, but beneficial ownership in the name of the person (or their spouse, more likely). This way, when the property is sold, beneficial ownership transfers to the new owner but title stays registered in the name of the corporation, so no land-transfer tax is paid, and the person (or their spouse) claims their principal residence exemption to avoid capital gains tax.

You can do the same thing in Ontario with respect to the capital gains tax, but you can't avoid land-transfer tax with the same trick. The government changed the land-transfer tax act decades ago to catch beneficial transfers too.
 

mig174

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Worse, actually. I'm a banker / wealth manager. Real Estate agents' ethical standards was too high a bar. ;)
I'm confident that you are an honorable person.

The homeless population, anywhere, and particularly the hardcore homeless, are a terrible, intractable problem. But it's not connected in any way, shape, or form to the cost of single detached homes in West Vancouver.

Now, this is an interesting thought. Is it true? Is there even anecdotal evidence of, say, HSBC having trouble getting employees to take promotions to Head Office in Vancouver as the housing is too hot and they'd rather stay in Saskatoon or Toronto?

Both of my statements have support, and I appreciate your questions:
As Vancouver home prices surge out of reach, businesses worry how to retain staff
See 'Locating Risk of Homeslessness on the Housing Continuum' part of this paper

I don't actually expect you to read any of this, or even agree with it, given your opinion that homelessness is an "intractable" problem. It is regrettable that your imagination is so lacking - and let's not overburden this discussion with concepts like 'empathy' or 'compassion', for your sake.

Well, I sold my house and will rent when we get back to Toronto. I'd suggest that those 'hardworking Canadian families' do the same, or do a deal with the in-laws. Are you saying they'll reject the inheritance once their baby-boomer parents die?
Yeah... let's not overburden ourselves.

All Canadians, even if they can't afford to own a SDH in Vancouver, benefit from an injection of capital from outside the Canadian economy. Full stop.
Do they really benefit from someone buying a home for millions outright, (misleadingly) declaring a poverty wage so they don't have to pay taxes, yet still benefiting from the social services that all Canadians pay into? At the same time raising property values and cost of living that makes housing less affordable and businesses less competitive?

Anyone has the ability to invest or spend their income. I would advocate investing in something other than West Vancouver SDH as that asset is overpriced, IMHO. To say that someone 'deserves' to own a house anywhere because their parents did is kind of ridiculous, isn't it? I don't deserve a horse just because my dad was a rancher.
I like your horse example. Goes particularly well with the straw you seem to have in abundance.

I'm sorry, but I think that your reaction to this story and thread speak more about you than the actual 'story'.
lol
 

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