Is this the best investigative journalist in the country?
In March, she broke the story that changed Vancouver real estate forever: shadow flipping by unscrupulous Realtors and their overseas buyers. That opened Pandora’s Box, and over the next few months, we watched the real estate industry change – all due to her piece in the Globe & Mail.
On Tuesday, she dropped a bombshell piece called, “Out of The Shadows,” about Canadian tax loopholes that are being exploited so foreign buyers can avoid paying C.R.A.
I can’t compete with this. So today, let’s just look at all the media attention on this topic…
It’s like one of those “Where were you, when,” questions…
Except those are always inherently negative, like, “Where were you when you heard J.F.K. was shot?”
I’ve often asked people, “Where were you when you first heard about ‘shadow flipping’ in Vancouver,” and more importantly, “Did you have any idea how much sh!t was about to hit the fan?”
As I wrote in a blog back in March entitled, “Kathy Tomlinson Changed Real Estate Forever,” the expose about shadow flipping started as a good read, but turned into something much greater.
There were a couple of follow-up articles by Ms. Tomlinson, and then the media took hold of the sensation, and eventually politicians jumped on board, and (ta da!) a 15% “foreign buyer’s tax” was born.
I’m convinced you can trace this tax directly back to Ms. Tomlinson’s article.
And I ask again, “Did you have any idea how much of an impact this article was going to have?”
Fast-forward to this month, and Ms. Tomlinson writes, “Out Of The Shadows” in the Globe & Mail.
Once again, the fallout begins.
“B.C. Finance Minister Calls On CRA To Diligently Crack Down on Tax Doges”
“Canada Revenue Agency Probes Tax Loopholes In Real Estate Speculation”
Every day, we’ll see another article.
And another.
And this will turn into the second-largest real estate story of 2016.
“Genius” ideas are already coming out of the wood-works, much like they did in regards to the foreign buyer problem.
NDP MP David Eby wants the Province to somehow link real estate transactions with income taxes!
That’s what we need! More government in our faces…
But wait – somewhere, there’s an anonymous online commenter who is going to simplify this to say, “We only need to link real estate transactions to income taxes for Asian buyers, silly! No need to do this with plaid-wearing, snowball-throwing Canadians!”
The CRA has apparently already committed an extra $400 Million to dig deeper into our taxes.
Maybe that’s why an auditor kept asking me for one receipt out of about 900 from 2015, for a sports medicine doctor…
Let’s keep my rhetoric to a minimum today.
Read Ms. Tomlinson’s article. Link again, HERE, in case you won’t scroll back up to the top…
Then comment below – is this a story about one guy, or is this an epidemic?
And what, if anything, can the government, or will the government, do about it?
Pete
at 9:02 am
I know a guy who quit his job to flip houses full time. He pays no income tax, and no tax on the money he’s made through flipping houses. Yet he still gets healthcare, education for his kids, infrastructure. Why is that fair or OK. You’re always so quick to blame government, but when things are so out of whack it’s the government’s job to fix it.
Jason
at 10:00 am
If you know a guy who is flipping houses and not paying any income tax, then he is doing so illegally. If someone is flipping houses as a full-time job he would be subject to the similar taxes as anyone who earns employment income. He could be subject to fines, penalties and criminal charges if he is caught or maybe he actually does pay income taxes and you’re just misinformed! I assume you haven’t seen his tax returns.
The government getting involved every time a negative headline hits the airwaves is not very responsible. They are making decisions hastily that have far reaching and unintended consequences that we’ll only learn about later on. Real estate, just like stocks, is an asset and it is bought and sold in a market place. If there are buyers and sellers that are willing to come together to complete a transaction, I don’t think government should have any role it in. They can warn us about household debt and inflated real estate prices, but they should not institute retroactive policies with minimal study! I agree some people will lose money and get hurt when real estate prices slow down, but that’s the nature of a market place. Not everyone wins! If you buy 6 houses thinking prices can only go up, eventually you’ll find out that prices can sometimes go down and you could end up bankrupt! There are risks to investing in any asset class whether it is stocks or bonds or real estate!
Mike
at 2:06 pm
You should call the CRA’s tip line and report the guy you know. They pay rewards for that kind of information.
Appraiser
at 7:44 pm
I get it. Flipping houses causes you not to pay your taxes.
Annie Mouse
at 11:49 am
I have some questions for all of you.
Do ANY of you own your own home?
Do ANY of you have a business?
And for capital gains on ‘flipping a property’ – if you live in and renovate the property during ONE year, (meaning it has been your principal residence) does that satisfy Revenue Canada to release you from capital gains tax? Are you able to sell without incurring capital gains?
Is it true that the Chinese are only allowed to own ONE home in China (and perhaps worldwide) without repercussions?
Do they put their homes in children’s names and company names to avoid this?
Has anybody done the research on these things? And I don’t mean articles from newspapers and magazines.
Just asking…..
Joel
at 9:50 am
As a mortgage broker I see a lot of people with million and multi million dollar homes with Notice of Assessments that are under $50,000. This is not just foreign buyers, but a large number of people who own their own businesses. I think that the CRA really does need to crack down on all money that is being made in Canada, whether buy a resident or foreigner.
We complain about tax increases, but the better way to do this would to be to tighten the tax laws and enforce them. The extra tax income that would come from this would really help out the Provincials and National governments.
Kyle
at 11:21 am
Bingo, we just need enforcement of the laws that already exist. If someone is evading taxes CRA should come after them, if someone is laundering money then the RCMP and FINTRAC should come after them and if banks aren’t doing appropriate due dilligence on borrowers OSFI should come after them. What we don’t need are any more half-baked, political photo op driven laws.
Appraiser
at 1:13 pm
Double Bingo!
Tomlinson’s on a witch-hunt. I wonder if she is proud of contributing to the invention of the new, hysteria-driven, politically expedient and poorly conceived 15% foreign tax law?
Kyle
at 1:39 pm
The Globe’s blatant anti-real estate slant has become pretty nauseating, but i guess it gets them clicks. Rob Carrick and Preet Banerjee have absolutely no clue about personal finance or real estate, but yet they shamelessly keep writing ridiculous articles to try to paint renting as a winning financial strategy over owning. Kathy Tomlinson and Tamsin McMahon keep using the same tired formula of drawing specious inferences and sensationalizing small bits of news or hearsay to manufacture “news” out of it. What i don’t get is why the bears they pander to, don’t see that it’s just smoke being blown up their ass.
Appraiser
at 7:41 pm
Someone needs to inform the editors at the Globe that” the plural of anecdote is not data.”
Kyle
at 4:44 pm
ZINGG!
To be honest, it’s hard to blame the Globe. It’s just too easy for them to resist. Real estate bears are like Trump and Ford supporters, it doesn’t take much to whip them into a frenzy. Just find something to twist into an ad populum message, and they’ll eat it up no questions asked.
They manufacture and publish this rubbish daily, in fact here’s another article today: http://www.theglobeandmail.com/news/british-columbia/incomeless-students-spent-57-million-on-vancouver-homes-in-past-two-years/article31892652/
…And in other news wealthy people without any income also bought fancy cars and other nice shit. How dare they?
It should be obvious to anyone who reads their trash, that they’ve long ago traded in their integrity for clicks, but as you’ve pointed out in the past, it is possible to fool some of the people all of the time.
Kyle
at 10:28 am
The Globe owes this man a massive apology: http://www.theglobeandmail.com/news/national/vancouver-real-estate-developer-seeks-to-set-record-straight/article31980747/?ord=1
After manufacturing a story full of allegations and inferences of tax evasion and and shady business dealings, based on the hearsay of one person and publishing all sorts of personal financial details, which seem to have been misappropriated by said person, they print some half ass “here’s his side of the story” article without any sort of contrition for f’ing this guy over. Absolutely disgusting “journalism”, and does what they’ve done not amount to an invasion of one’s privacy? I hope he sues their asses off.
Kyle
at 1:27 pm
Comments on the follow up story “have been closed for legal reasons” I am not so secretly hoping that the legal reasons are because he is taking the Globe to the cleaners. It’s disgusting that a National newspaper would baselessly seek to ruin someone, for the sake of trying to win a CAJ award.
Condodweller
at 11:34 am
negative bingo!
There is nothing illegal about owning multi million dollar homes and having a relatively low income on their tax returns. In this case it looks like it is but in many cases one can perfectly legally shelter income in a corporation and take a small amount of income required to live off of provided the income is reported in the corporation and its taxes paid.
Mike
at 2:05 pm
If you own a corporation you’re paying corporate tax. It doesn’t make sense to pay yourself because now your paying tax on money that you’ve already paid tax on. Pretty much every lender who sees a low NOA is going to ask to see the corporation’s financials. That and the first way to get picked off by CRA is to buy a large house while hiding your income. The CRA is not stupid. They have software that picks up your address and the average income for the area; did you think that the reason they ask you “do you own your home” is because they’re curious?
When I talked to Home Trust about a mortgage they wanted letters from my accountant stating that I was up to date in all my taxes and audited financials from my companies; they never once asked about my NOA and I never provided one.
T
at 9:36 pm
Agreed; this is ultimately an egregious case of underground economy, which has no doubt flourished with the real estate boom.
Joe Q.
at 10:38 am
Two more interesting pieces hit the wire today, one from Kathy Tomlinson and another from the CBC.
http://www.theglobeandmail.com/real-estate/vancouver/canadian-banks-mortgage-guidelines-favour-foreign-home-buyers/article31869946/
(Canadian banks seem to have a lower “bar” for mortgage applications made by foreign students)
http://www.cbc.ca/news/business/fintrac-real-estate-money-laundering-1.3761343
(Real-estate firms found to be in violation of money-laundering rules, but the lack of detail in the piece makes it hard to know just how big the impact might be)
Kyle
at 3:47 pm
The first article is yet another attempt by the Globe to manufacture a story out of nothing and they are once again twisting this into their blame foreigners for high real estate price narrative. A no-fail narrative for whipping real estate bears’ panties into a knot.
What the article doesn’t tell you is that the banks are lending based on very favourable LTV ratios, not on income. And that the same holds for borrowers regardless of whether they’re foreign or Canadian. OSFI states, “Whether the borrower is foreign or domestic, OSFI expects that institutions will take reasonable steps to verify income; and where income verification is inadequate, to have compensating controls”. If a Canadian student walked into a bank with a 50% down payment he would be treated no less favourably.
http://www.mortgagebrokernews.ca/news/osfi-responds-to-globe-and-mail-report-213833.aspx
Chris Mastel
at 11:49 am
I would advise caution not to try to defend the indefensible. It looks like there is real corruption and fraud going on. You don’t want to end up being a bubble poster boy if this really hits the fan.
Jason
at 1:29 pm
I would agree that the allegations in the article are disturbing and should be addressed by the CRA and the RCMP, but I would strongly disagree that a 15% foreign buyer tax is the answer. The government is overreacting after years of turning a blind eye to the situation in Vancouver. I’ve been reading articles about inflated real estate prices in Vancouver for 15-20 years. Why is there more urgency now to address it than in the past? They have had plenty of time to come up with a thoughtful and measured approach and instead they instituted an across the board 15% foreign buyer tax. That tax punishes a lot of people unintentionally. The government doesn’t distinguish between Chinese buyers and other foreign buyers. Other countries that have experienced similar problems have instituted foreign buyer taxes of approximately 4%. There’s a big difference between 4% and 15%. Bubbles are creating in real estate just as they are in the stock market, in gold, in oil, in tulips, etc. That’s not going to change. You have the option to take on risk or not take on risk.
T
at 9:33 pm
If the government doesn’t distinguish between Chinese buyers & other foreign buyers, isn’t that a good thing?
Appraiser
at 7:50 pm
No one is defending the indefensible. There are plenty of business endeavors from which to choose, if you wish to cheat the tax man. Real estate is just one.
P.S. More rules won’t deter the cheats. Enforcing the existing ones will.
Libertarian
at 2:38 pm
I agree with other commenters that the government should crack down on existing tax laws. I have always wondered whether various government institutions communicate with one another and/or share information. Don’t the Land Registry Office, property tax system, CRA, FINTRAC, etc. all share info? Wouldn’t that make it easier to enforce existing laws? I get the impression that they don’t share any info because they each have different jurisdictions, are at different levels of government and probably due to the privacy laws in this country. Perhaps the three levels of government could make themselves more efficient by sharing info. To buy a stock you have to give your name, address, SIN, etc., which helps CRA track that. Make an RSP contribution – the CRA knows that. Can’t they do the same for real estate?
T
at 5:15 pm
It’s in Toronto as well. “80% sold” signs on every new pre-construction condo, no matter if sales office is even yet to be installed. Flipping paper into a tangled mess. CRA needs to step in as rumours of money laundering is now becoming obvious. Many are worried it’s not so much foreign money, but that of crime/drug profits. And seeing some of the ‘recent’ newly minted ‘developers’, it’s obvious many would be more comfortable on a Harley than their new MacLarens.
Formerly Frosty
at 8:57 pm
The so-called free market is construct of government regulation. If the market were truly free, my hired goons would burn down your sh*t and take away everyone and everything you care about until you agree to transfer your real property to me for $5, after which I’d take a crowbar to your kneecaps just to look like a big man in front of said goons.
Oh wait, you were being sarcastic. I wasn’t.
Don Juan's Dong
at 1:36 pm
Sorry Frosty, nope. Because because I would also be armed and smoke you when I saw you approachign with a crowbar.
Even true libertarians like Rothbard and Rand don’t have any any problem with a police force existing. Maybe its pricatizated. But a strong judicial system is a prerequisite to a Randian version of free market capitalism. Government ruins everything.
Alex
at 11:40 pm
The end of cycle is coming and everybody shorting Canadian RE and banks should be delighted. Still time to get out.
Wut
at 2:27 pm
““Every one of [those client families] has more than one house – two, three, four, sometimes more,” he says. “They don’t have to tell me. The CRA says they don’t have to tell anybody.””
This is the problem right here. And it’s not just foreigners. But shouldn’t it be fixed? For example I bought a house pre-construction. By the time I moved in, that house went up 50% and my old house went up 30%. So while that home was being constructed I was gaining capital on two houses. But the rules as I know them say that’s ok, I pay tax on none of that. I know someone who bought 2 homes pre-construction. One closed a few months before the other so they sold their old house and moved into the new one, then sold the new one and moved into the new new one, making over 1 mil in capital gains in 2 years. Yet they will declare nothing. I will have paid more tax on the $1.00 of interest I got from my chequing account than they will pay on 1 million dollars. The insanity of the housing market is making a joke of our tax laws.
Condodweller
at 4:04 pm
You should buy real estate instead of keeping cash in your account :-). Seriously though, buying pre-construction is an option to buy. As long as you move into the new home for at least a year it’s fair game to have capital gains on two properties as you don’t technically own two at the same time. If the market ever turns, those people are going to be losing capital on two houses. Moving to the second new house after having only lived in the new one for a few months is frowned upon by the CRA however there is nothing preventing one from doing it and as long as the CRA doesn’t come knocking on your door you are fine. The CRA went after the person I bought from to pay income tax on their capital gain since they never lived in it and sold it within a year. The CRA is checking but they probably don’t have the resources to check everyone.