New Type of Real Estate Fraud
Tuesday Jan 30th, 2018
Wealthy 'ghost immigrants' using empty homes to claim citizenship: tax expert
Some foreign investors, particularly those from China, are taking advantage of Canadian loopholes to become ghost immigrants, according to David Lesperance, a tax and immigration consultant with Lesperance & Associates.
Lesperance cites one recent judge’s decision from a lawsuit in which the judge said Chinese millionaire Guoqing Fu bought multiple multi-million-dollar homes in Canada while claiming just $97 in worldwide income on his taxes. The judge’s 600-page ruling in the case was posted online earlier this month.
“That was really pushing the edge,” Lesperance told CTV’s Your Morning on Monday. He says the situation would have gone unnoticed if Fu’s family and his partners, the Xia family, had not turned on each other and exposed their activities in court.
"These were two parties...who fell out and decided to sue each other in civil court,” Lesperance said.
The judge’s ruling from the case indicates Fu “had a large and successful business in China,” yet he only claimed “a miniscule worldwide income of $97.11” on his Canadian income tax return, despite spending millions on three different homes. “This was an incredible assertion given the fact he owns one of the top 10 textile manufacturing and distribution companies, based in one of the biggest textile manufacturing centres of China,” the judge’s decision said.
Lesperance says wealthy foreigners are using these tactics to game the Canadian system because no one is investigating to verify that they’re actually physically living in Canada. He says the Canadian immigration system isn’t really looking at these people, and that the Canada Revenue Agency isn’t focused on them because it lacks the resources to do so.
A spokesperson for the CRA said it works with provincial and municipal governments to enforce local tax and principal residency laws.
“The government… is actively engaged in monitoring and addressing the overall health and stability of the housing market and financial system in Canada,” a spokesperson for the CRA told CTVNews.ca in a statement.
The CRA says it recovered $117.9 million by conducting 4,471 audits from April 2015 to September 2017 in B.C. It also recovered $331.2 million through 21,280 audits conducted over that same period in Ontario. The highest penalty was almost $2.5 million, according to the agency’s website.
“It is important to note that the mandate of the CRA is to administer the tax legislation provided by the Department of Finance,” the CRA spokesperson said, adding that issues of immigration fall under the mandate of Immigration, Refugees and Citizenship Canada.
An IRCC spokesperson said the department is continually working to improve its systems to detect fraud.
“The government of Canada takes any kind of citizenship or immigration fraud seriously,” a spokesperson told CTVNews.ca in a statement. The spokesperson added that the IRCC works with the RCMP and the Canada Border Services agency to enforce the Immigration and Refugee Protection Act and its regulations, “including allegations of fraud.”
The IRCC points out that the CBSA is responsible for investigating suspected immigration fraud.
The CBSA has set up a hotline for reporting immigration or citizenship fraud.
Lesperance suggests foreign buyers are pulling off these schemes in Toronto, Vancouver and Montreal, where their homes are sitting empty despite high demand for housing in the area.
“While they are getting the benefits of Canadian permanent residence and citizenship, they are, like this gentleman, not contributing to the tax base,” Lesperance said. “They’re driving up house prices, they are denuding neighbourhoods of vibrancy and customers for local restaurants and businesses, and they’re not contributing to the tax base.”
Canada’s hottest markets have taken steps to curb this practice recently, by imposing foreign buyer taxes, as well as taxes on homes that sit vacant. Numbers released by Ontario in December show foreign home buying was down due to higher taxes in the latter part of the year.