Ron Usher is a lawyer, Commissioned Notary Public, and SFU Visiting Professor – Property Law.
A modest proposal for the steps needed to collect accurate, actionable information on B.C. real estate ownership and taxation.
The problem of housing affordability is, of course, complex and multivariate.
There are many conflicting reports and no shortage of opinions on the nature of ownership in the “VanRe” housing market.
The reality is that there is not a good base of information. There are many ideas on what controls – or not – are needed regarding the purchase of housing.
What we do need is accurate information on the acquisition and disposition of interests in real estate.
The current system of “self-reporting” at the time of disposition is not working. The CRA did not enforce it for many years. Confusing requirements impose significant burdens on the wrong parties. For example, the recent v. 29 of the Property Transfer Tax Form requires buyers to certify the tax residency of sellers – who they most often have never met. This problem is compounded by the complexity of our laws around tax residency.
So what is needed to collect accurate, actionable data for both tax collection and the formation of public policy?
We need at least three innovative measures to be put in place immediately. The details of how to implement the recommendations below will need significant and broad consultation.
- On every acquisition of an interest in BC real estate, the buyer must complete and file a “Notice of Acquisition,” to be sworn and submitted at the time of land title office (“LTO”) submissions. The notice would include identifying information, tax details (SIN, tax residency, etc.), and disclosure of any “beneficial interests” if they vary from the “legal interest” that is registered. This requirement could also apply to private (unregulated) mortgage lenders as mortgages are an “interest in land.”
It should be noted that in B.C. real estate held in the name of a trustee already requires the submission of the trust document. The document is publically available and shows the beneficiaries of the trust.
- On every disposition of an interest in real estate, the seller must submit a mandatory sworn “Notice of Disposition” with similar information. Just as a land title filing now requires a Property Transfer Tax form, the notices from the buyer and seller would be required with every change of ownership submission to the LTO.
- We also need a one-time “census” of all existing property holdings, with substantial tax penalties for failure to file.
We may also need this to apply to other “dispositions of interests in or rights to acquire interests in land.” This could be done by requiring:
- A “notice of change of beneficial ownership” to deal with both “bare trusts” and the sale of the ownership of companies holding land. Currently, both of these quite legal procedures do not attract Property Transfer Tax and possibly avoid Income Tax as no LTO submission is required.
- A registry of pre-sale contracts and assignments of those contracts. This “acquisition or assignment notice” would also apply to all assignments of real estate contracts, not just new development contracts.
We need to remove the burdens that are placed on buyers by having each party file their own sworn documents, fully respecting federal and provincial privacy laws and allowing for the full collection of provincial and federal income taxes.
Comments, corrections, and feedback welcome- send to vanre@torrensinstitute.ca)
This is one of the most intelligent and informed proposals to sort the chaff from the wheat in our overheated real esstate market. Concurrently, the CRA, FinTRAC and provincil agencies are working with similar methods to weed out corrupt and questionable sources of money hidden in the real estate primarily in the wealthier parts of town. The real estate industry sure hasn’t helped, so these imposed regulatory approaches must step in. Thankfully, carte blanche banning of foreign wealth is not part of this nuanced approach.
Kathy Tomlinson wrote a great investigative piece in Saturday’s Globe on the practice of using private lenders, who are largely unregulated in BC. China recently capped money leaving the country at $50,000 per individual and this alone has affected the flow overseas, including to BC. Enter the private lenders who work over here burt who have contacts back in China. These lenders cater to clients who are honest but who need the money, but also to the laundering of drug money through real estate sales and loans to heavy gamblers, and often take a piece of the house value on its sale (or slap a builder’s lein on it without doing any construction) as debt repayment.
https://www.theglobeandmail.com/news/investigations/real-estate-money-laundering-and-drugs/article38004840/
To her great credit, Tomlinson delves only slightly into conjecture that these tactics “may” be assiting the elevation of housing prices, but stays clear of any speculation on how much. She also studiously avoids inferences, conjecture, conclusions, criticism, dismissal or any other judgements on the myriad of other influences on the market, such as higher demand due to record cheap credit and demographics, or tighter land supply through inefficient zoning. Best of all to urbanists, she does not defend one type of housing and zoning over others. At least one of her colleagues at the Globe could learn much from her about mature investigative journalism.
And there remains the one question: once the data is in and new regulations on foreign ownership are put in place, just how much will housing prices fall as a direct result versus all the other effects, such as rising interest rates? Will it be 5% or 55%. I’d say somewhere in between, but will not commit in the absence of data.
These are all sensible suggestions and many are actually in the latest BC budget.
Details on the B.C. budget as it relates to real estate … “only” 30 points … good for at least 12-18 dedicated price tag blog posts http://bcbudget.gov.bc.ca/2018/homesbc/2018_Homes_For_BC.pdf
My post was written before we knew about the “Speculation Tax” in the BC 2018 Budget. Much has been said about the term “Speculation”, in particular as it applies to other Canadians. I have been concerned about the use of this highly charged word – but perhaps it is the right word to use.
Turns out it is a “speculation” tax – Speculation by the government.
Definition #1 applies, not #2.
From Google’s dictionary:
“1. the forming of a theory or conjecture without firm evidence.
2. investment in stocks, property, or other ventures in the hope of gain but with the risk of loss.”