BC Tracking Condo Purchasers

Effective September 18th, 2018, the Ministry of Finance in the province of British Columbia (Canada) has introduced a new version of their property transfer tax return which asks for additional information which could be used by the Ministry of Finance, or the Canada Revenue Agency (CRA) to track condo flippers, or those individuals or businesses who purchase condos and rent them out.

The property tax transfer (PTT) return requires that individuals with a “significant interest” in a corporation or trust that acquires property must be identified, with some exceptions.

If, the purchase is made through a corporation or trust, this new legislation will require property developers to collect a database of pre-sale buyers and remit that list to the BC Government.

The change in the regulations have been implemented to reduce the opportunity for tax evasion and / or money laundering, which are believed to have contributed to the skyrocketing house prices in the province.

The New PTT Return will likely require information on all beneficiaries of certain trusts and corporate interest holders including their name, contact information, tax identifiers (SIN, ITN, BN), and citizenship.

The draft legislation titled the Land Owner Transparency Act is still in the consulting stage and the BC government has stated that the results of the consultations do not affect the new PTT return which came into effect September 17, 2018.

These changes pose real threats to the highly speculative pre-sale condo market in BC, and if successful, will likely be implemented in other large urban centres, such as Toronto, Montreal and then across the country.

In recent years, pre-sale buyers have made out like bandits, securing pre-sale contracts with no proof of funds, without having financing in place, or the ability to secure financing and in many cases these buyers have absolutely no intention of closing upon completion of the condo, instead, flipping the contract to other buyers at a profit, without paying the tax on the gain.

The CRA frowns on buyers who flip condo contracts once a profit has been realized and have cracked down on this process, albeit, not enough, and not just on those who have been taking part.  The CRA has also assessed buyers who have legitimately sold their units and who have met all of the requirements for ownership, however it’s much easier for the CRA to determine everyone is guilty than to have to pull the legitimate from the pile of illegitimate.

These contract flippers have been successful because there is no title registration through BC land titles which means the best that the CRA can do is take the developer to court in order to obtain the list of pre-sale buyers who have flipped their contract, or go to court and seek information through a Requirement for Information, but the CRA must have evidence to support their claim that buyers have flipped condo contracts without declaring the capital gain.

All in all, this is just another area where the CRA is tightening up regulations thanks to the BC Ministry of Finance, and we will soon see this process come to an end.  In the meantime, there will be a whole bunch of taxpayers who will be assessed by the CRA, and there will be a 50% Gross Negligence penalty attached to that assessment.

Taxpayers who have been assessed by the CRA and who have done nothing wrong, should contact inTAXicating Tax Services at info@intaxicating.ca, and discuss our strategy for assisting taxpayers.

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On the Fence about FATCA? Canada and U.S. Sign Intergovernmental Agreement on Foreign Account Tax Compliance Act

Ever since  I caught wind of  the Foreign Account Tax Compliance Act, back in 2010, FATCA has been near the top of my radar.  For those of you who are unaware what FATCA is, The Foreign Account Tax dept of financeCompliance Act (FATCA) requires citizens of the United States (present, past, those with citizenship who do not live there, those who worked there a specific number of day, and those who received “accidental” citizenship through birth), to report their financial assets held outside of the United States to the Internal Revenue Service (IRS).  If providing that information means that the IRS would be taxing you and you have been trying to hide these assets, FATCA requires foreign financial institutions to report your information to the IRS.  The intent of FATCA was to combat offshore tax evasion and to recoup federal tax revenues.   FATCA is a portion of the 2010 Hiring Incentives to Restore Employment (HIRE) Act.

As the tax manager at Computershare Investor Services and the Assistant Vice President of Tax for CitiGroup (CitiFund Services) I got to know FATCA very intimately and at one point or another became the Canadian lead on information dissemination and compliance.  After almost 11-years of interpreting legislation at the Canada Revenue Agency (CRA) deciphering this text came second nature and thus taking the FATCA regulations and translating them into English was not a difficult task, but more something that I had to do in order to teach myself the requirements so I could pass along that knowledge to my employers and to my clients.

The interesting thing about FATCA from a Canadian side was that with over a million “US Persons” here in Canada (probably much more now) I don’t believe the IRS understood that the majority of them were paying taxes in Canada and since the Canadian tax rate is higher than the US rate, there was some hesitation on the Canadian side to provide all this data to the IRS for no net gain.  Other countries rushed to sign intergovernmental agreements with the IRS to meet deadlines which have now been pushed out again as a result of the July 2014 start date for FATCA, but Canada did not.

The Canadian government was hesitant to force Canadian financial institutions to provide the very detailed information on Canadian citizens for fear that they would be double taxed, something the Canada-US Treaty strove to avoid.   In addition, the Canadian side wanted the Canada Revenue Agency included so that information could pass through secure channels and potential breaches of security and privacy could be avoided.  There was even talk that Canada refused to sign an agreement with the IRS, instead forcing the IRS to seek their own tax cheats from their own side of the border.

Then something changed.

The IRS began ramping up their search for US Persons via every mean possible – whether it was checking Facebook accounts to see where people are born, cross-checking it with school records – or by allowing people who had no previous knowledge of FATCA some amnesty when catching up on their delinquent tax returns, but then hammering them on their filing of the Report of Foreign and Financial Assets to the tune of $10,000 per late return – with no maximum.

People became scared, and when scared you have two choices to make.  Either flee or fight.  In this case it’s either comply or pray.

Those who chose to file had to wade through unclear rules and regulations and a lot of unclear information floating around on the Internet.  Is there penalty, is there not?  Will I be charges criminally, or will the IRS understand that I was not aware of my obligations.  Do I have to file 3-years of past-due returns or 10 years?  When are FBAR’s due?  Should this cost me $10,000 or $100,000?

Many questioned the over-reach on the US side while others commented that as an US citizen, the requirements were there and you should have known.

But with all that being said, on February 5th, 2014, Canada and United States announced that they have reach an agreement on Foreign Account Tax Compliance Act (FATCA).

The intergovernmental agreement lays out the details of how the US will be using FATCA to track down the Canadian financial activities of US persons to make sure they are paying required taxes to the IRS.

Under the terms of the agreement Canadian financial institutions will send some of the information they collect on their US clientele to the Canada Revenue Agency and the CRA will transmit the information to the IRS.

The agreement can be read in it’s entirety on the Canadian Department of Finance website.

My take from reading the release is that the Canadian government realized their hands were tied, however they were not going to allow the IRS to demand information which violates Canadian privacy laws and thus allowed the IRS to pursue their legitimate tax-base with the assistance of the CRA much in the same way the CRA and IRS work together to collect tax debts – through information sharing and not the actual collecting of debts for the other country.

Kerry-Lynne D. Findlay, the Minister of National Revenue said; “This is strictly a tax information-sharing agreement. This agreement will not impose any U.S. taxes or penalties on U.S. citizens or U.S. residents holding accounts in Canada. The CRA does not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose. This includes dual Canada-U.S. citizens. That will not change under this agreement.”

Changes to the FATCA legislation under this agreement include, but are not limited to;

  • Certain accounts are exempt from FATCA and will not be reportable, including Registered Retirement Savings Plans (RRSP), Registered Retirement Income Funds (RRIF), Registered Disability Savings Plans (RDSP), Tax-Free Savings Accounts (TFSA), and others yet to be released.
  • Smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt from FATCA compliance.
  • The 30 percent FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the agreement.

This intergovernmental agreement is only the beginning.  Recent G-8 and G-20 commitments agreed upon in September 2013, intended to fight tax evasion globally and to improve tax fairness, provide for an automatic exchange of tax information as the new global standard.  This agreement signaled an intention to begin exchanging information automatically on tax matters among G-20 members by the end of 2015.

So like it or not, FATCA is just the beginning of a world-wide crack down on tax evasion.

Still on the fence?

inTAXicating Tax Services works with several Canadian tax-preparation firms who specialize in US taxes, and FATCA compliance.  If you wish to get caught up, please feel free to reach out to us at info@intaxicating.ca.  If, you have further questions and wish to discuss your requirements, you can email, or call us at 416.833.1581.  If you wish to comment, you may do so below.

Mailing to Supressed Holders – CRA and MRQ.

Have you ever wondered if you are required by law to mail out a tax slip to an individual / entity even though in doing so you know it will be returned by the post office marked as “undeliverable”.

These Q&A’s below may help you get a cleared picture of your legal requirements;

Q1: Is there a requirement to mail tax forms to suppressed holders?

A1: Yes. There is no statutory exception to this requirement. The forms specifically mentioned included; the T5, T5008, T4, T4PS, T4RSP, T4RIF, RSPR, T3, NR4, T5013 and T101.

Q2: Will the government excuse you from mailing to suppressed holders if the issuer/client advises you not to mail them / their clients?

A2: No, the obligation to mail is yours, because you make the payment (e.g. dividend or interest). In fact, if there were a penalty charged for failing to provide a tax slip, it would be on you, not the entity or person advising you.

The Income Tax Act does not specifically say “you must mail to suppressed holders”.  Rather, it states that if you make a payment, you have to send out a tax form.   The Income Tax Act does not make a distinction between suppressed holders and other holders. (Note, even though we do not actually “make a payment” – in that we do not send out a cheque to a suppressed holder – the analysis is the same.)

Q3: Is the requirement to mail absolute regardless of the dollar amount, or is there a dollar amount threshold? For example, don’t have to mail unless the aggregate amount paid to a holder is greater than $50.00.

A3: There is a $50 threshold for T5 reporting (that is, the CRA does not require that a T5 be prepared if the amount of the payment was less than $50).  For the other tax forms, there is no threshold.

Q4: What about prior tax years?  Do we have to mail these prior years’ tax forms if requested?

A4: There is nothing in the Income Tax Act which would alleviate the responsibility to provide prior year forms and failing to provide one may result in a complaint and subsequent audit.

Q5: What is the situation with respect to suppressed holders under the Quebec income tax regime, the MRQ?

A5: Similar to the Federal Income Tax Act, under the Quebec income tax regime (a) there is a requirement to mail the tax forms and (b) you are not excused from mailing if the issuer/client advises you not to mail.

Bottom line… Mail!