Housing a Tax Dodge in Richmond and Vancouver

Why some of the most upscale neighbourhoods report poverty-levels of income

Some might be surprised to learn that certain areas of Richmond and Vancouver, despite being thoroughly decorated with mcmansions, monster homes, and incessantly rising land prices, are actually inhabited by low income residents that make up a surprising per cent of the population.

Conservative Party leader Stephen Harper, during a visit to Vancouver, said “There are real concerns that foreign, non-resident real estate speculation is the reason some Canadian families find house prices beyond their budgets. By some estimates as many as 15% of the condos in Vancouver sit empty.” Promising if re-elected to commit to collecting comprehensive data on foreign non-resident purchases of Canadian real estate, Harper goes on to outline our current situation. “In most developed economies, governments track this kind of information, but governments in Canada historically have not, and as a start this needs to change.”

During Oct. 7 foreign ownership was being discussed in a sold-out public forum held by the Urban Development Institute. Jeffrey S. Lowe, immigration lawyer and panelist in the forum, attributes the longer-term visa program the federal government introduced in February 2014 as a contributing factor to the issue, stating “People can now come in as visitors, look at properties and buy properties. They don’t have to spend any time here. Increasing the visas indirectly encourages more foreign ownership.”

This federal program enables easier “astronaut parenting,” where a family moves to Canada, but the head of the family goes elsewhere to make money. Canada ends up with the spouse and children, who will not be declaring much earned income, as foreign nationals could acquire permanent resident status for themselves and their dependants without becoming resident for income tax purposes. The lack of income tax being declared causes demands on healthcare and education systems by residents unwilling to contribute their global income. The provincial and federal income taxes that are often unpaid also fund highways, transit, universities, and hospitals.

Many are calling for more data on the matter, including Vancouver lawyer Richard Kurland, who has made calls to enforce a requirement needing home buyers and sellers to provide Canadian Revenue Agency documentation to provide proof of residency for tax purposes during real estate transactions. The reasoning is that with such information, tax authorities would have better control over real estate transactions and less trouble going after wealthy buyers who may not be reporting as much in their income tax. Kurland further claims that property prices are skyrocketing partly because people who won’t pay their tax bill to Canada can afford to spend more for that property in Vancouver.

And it’s not just Vancouver. These issues are also prevalent within Richmond, which is inhabited by low income residents that make up 22.4 per cent of the population, according to income reporting data. Statistics Canada portrays Richmond as one of the poorest cities in BC, with disproportionately high levels of child poverty. The Thompson neighborhood, which holds many $1-$3 million dollar properties, is ranked based on income reporting to be the second highest level of poverty, with 26.2 per cent of its inhabitants living in “near poverty levels.”

The Metro Vancouver Housing Data Book states that Richmond has on average the third highest prices for single family dwellings of any municipality, behind only Vancouver and West Vancouver, seemingly contradicting the frequently reported “near poverty levels” of income.

The Housing Data Book also states that Richmond has the highest proportion of households maintained by immigrants who are, based on their income reports, judged to be in “extremely dire housing” situations, in that they are spending half their income on shelter. The number of these “extremely dire housing” situations maintained by immigrants is 51 per cent in Metro Vancouver, largely increasing to 71 per cent in Richmond.

More than 60 per cent of residents of Richmond are immigrants, which is the highest rate in any city in Canada, with concentrations as high 70 percent ethnic Chinese living in North Richmond. There is a disparity in paying taxes between the ultra-luxury, highly immigrant populated neighborhoods like Thompson, who report poverty-like levels of income, and neighborhoods like Steveston which has the smallest number of immigrants in Richmond. Steveston reports the smallest portion of low income households at 11.4 per cent, despite being one of the more middle-class neighborhoods of Richmond, having no sidewalks in some of the less luxurious parts.

A 2014 Federal Government analysis showed that immigrants from China, Taiwan, and Korea are most likely to declare the lowest incomes in Canada. The same analysis reports recent immigrants from these countries are also more likely to be business-class investors who own significant unreported assets and might be reluctant to truthfully giving the government information about their income.

Dr. David Ley, UBC Professor of Geography and panelist at the Urban Development Institute’s public forum, said that since the mid 1980s there have been attempts to use racism “As a kind of shaming of anyone who raises these questions. Right now, we have investment from a certain origin … that is making housing unaffordable to people who live and work in this region.”

The loophole in the law regarding income tax allows foreigners to send money to a Canadian national who is in their family in order to prevent paying income tax to Canada, as you will only have to pay tax from the income you earn in in Canada itself. The result is that wealthy property owners do not fully report and pay taxes on their global income. This is because the Canadian government believes you have paid taxes already on your own jurisdiction.

Colette Turgeon, media relations for the Canadian Revenue Agency, says “Real Property is a sector that the CRA focuses on, and the Agency pursues all forms of tax non-compliance and works hard to identify and correct cases of tax evasion or avoidance to keep the system fair for Canadians who meet their tax obligations.”

In response to the question of how the CRA plans to acclimatize new immigrants to taxes, Turgeon says, “The CRA is creating a short video to encourage newcomers to file their taxes and show the many advantages to filing, while also increasing awareness of their tax responsibilities while living in Canada. The video, approximately two minutes in length, will be translated into four languages (Punjabi, Cantonese, Arabic and Spanish)”

These issues have attracted international attention and media, with filmmakers from Asia and Europe visiting Richmond to document its unique population boom and large immigrant majority. South Korean filmmaker, Sunghan Lee, visited Richmond to create a documentary that will explain to a South Korean viewership what happens when a large amount of wealthy, property buying Chinese immigrants move into a city. Lee’s documentary outlines how Asian money inflates the real estate market in Richmond, resulting in the construction of empty mansions. Lee recommends new immigration policies in Canada, especially one dealing with empty houses as a result of foreign investing. As a result of a stream of rich Chinese immigrants buying up luxury housing in Seoul and Jeju, new laws were passed in South Korea that prohibit migrants from owning property unless they can prove their intent to stay within the country for more than 200 days in a year.

Interestingly, In 2006 an HSBC employee in Liechtenstein released thousands of names of tax haven exploiters, with 106 of them being Canadians who had hidden up to $100 million. With 22 million tax dollars left uncollected, none of the offenders were given any offenses or charges.

Tax evasion is an issue that has long been ignored within Canada. The Conservative Government continues to promise to be tough on people who evade taxes, though very little is actually done in preventing or punishing offenders. An analysis done by the CBC two years ago reveals tax evasion problems similar to what is common today, with only eight of the 25 evaders within the analysis sample found guilty of hiding income or assets in an accepted tax-haven jurisdiction, signifying inefficiency to punish and discourage offenders. The executive director of Canadians for Tax Fairness, Dennis Howlett, claims that modest estimates conclude Canada is losing at least 7.8 billion dollars a year, with the bigger estimates being 10 or 20 billion.