The (Slightly Expanded) Land Owner Transparency Act
Yesterday the BC Legislature passed the Land Owner Transparency Act, which will lead to the disclosure of ownership of nearly all properties in BC. What some people don’t know is that the ownership of properties by individuals is already transparent and publicly searchable in BC through the Land Title and Survey Authority (LTSA). Given an address, you can pay the LTSA a few bucks and pull the title for the property, which contains the full name of the owners, their occupation and address as well as whether there is a mortgage registered against the property amongst other things. The exception to now has been for properties that are held by companies, in which case the title will only tell you the company name (which might be numbered) and not who is behind the company.
Fundamentally what this legislation will do is expand the current land title database to properties owned by non-individuals, and crack open the shell companies to reveal who is inside.
The government says that it will be the “first publicly searchable registry of its kind. Information, including names of all corporate interest holders, beneficial owners or partners, will be publicly searchable through the registry”. How public will the information really be? The key is in the definition of the word searchable.
What does searchable mean? In the current context of land titles, it’s not like how you search for cat pictures online (rest in peace, grumpy cat). You (as a member of the public) can’t run advanced searches like finding out who owns the most properties in a neighbourhood, or figure out what percentage of $1M+ properties have mortgages on them, etc.
In the current land title database you can search either by property identifier or owner name and retrieve a list of titles. It appears that the new registry will be the same, with the only difference that titles for properties held by corporations will be accompanied with an addendum showing the beneficial owners of the property. If we consult section 35 of the act, we see that members of the public will be able to do at a few different searches:
- a search of the parcel identifier for a parcel of land to ascertain the persons who are interest holders or settlors in relation to the parcel of land;
- a search of the name of a person to ascertain the interests in land in relation to which the person is an interest holder or settlor;
- a prescribed search.
Search 1 and 2 is what we can do right now. Searches that fall under part 3 are likely to be determined during implementation and might contain some new features that we don’t yet have. To address concerns around safety impacts of this information being available, it seems that individuals may “request that some or all of the individual’s primary identification information be omitted from or obscured in publicly accessible information if the individual believes that making that information publicly accessible could reasonably be expected to threaten safety or mental or physical health” (section 40). I’d be interested in hearing from organizations that deal with vulnerable individuals to determine if this sufficiently addresses safety concerns from the increased access to information.
More advanced search capabilities will also be available to government and law enforcement. The messaging is clear with statements in the press release like “Tax authorities, law enforcement agencies and relevant regulators will have access to more detailed information and may use it to crack down on tax evasion, fraud and money laundering” and “The Canada Revenue Agency will have access to information and may use it to crack down on tax evasion”. Of course, neither law enforcement or tax authorities have anywhere near the resources to actually investigate all of the potentially shady real estate holdings in the province, but it’s clear that they are trying to put the fear of God into those owners and use that to pre-emptively flush them out.
Outside of making it more difficult to hide money in real estate, an important secondary effect is catching those that were able to previously avoid paying property transfer tax on the effective sale of a property. I’m not a lawyer, but as I understand it, one way to transfer property ownership was to keep a numbered company as the holder of title, and then sell the controlling shares of that company. No title transfer means no Property Transfer Tax. While I’m sure this kind of sale was not that common, the beneficial ownership registry will make it more difficult or impossible to transfer ownership without the government collecting their share. This registry will work together with the Condo Assignment Register which also closes a loophole for tax avoidance when transferring effective ownership of property. Together it means that all real estate transactions will be tracked and transparent.
There are going to be a lot of busy lawyers out there in the coming months as the owners of shell companies set up to hide something scramble to rearrange or divest their holdings before the light is shone on them.
@barrister- looking forward to what comes back.
@ introvert- I’m only trying to help. I believe many accountants are being willfully ignorant of the most obvious way to interpret that guidance because no one has been caught yet and no one wants to be the first person to change interpretation for their clients because it will cost their clients money and potentially the accountant current and future clients as well.
Rule 1 is likely much less than 50%. Probably anymore than one bedroom. (I.e 10%, maybe less)
Rule 2 Covers ANY change. I.e having folks living in a small part of your house is probably ok but put in a plug for a second stove and you could be offside.
Barrister also pointed out- if you bought a house with a suite, you actually bought a principal residence and a rental property. When you sell the rental property, tax on the gain is due.
Also, the court case about the guy who built the suite but never rented it hinges on the space not being regularly inhabited, so that’s important as well. If you bought a house and never rented or regularly inhabited the suite, it’s still a rental property.
Viola,
I actually would consider the idea of sharing a house. I too am clean and always pay my bills on time.However, I am a meat eater, so that could be a deal breaker. Maybe we could do something like buy something big and then divide it up in 2 units, like duplexes or something. But then you would have to be ok with me bbq outside sometimes…
Monday numbers: https://househuntvictoria.ca/2019/05/21/may-21-market-update
Introvert: If you buy a house that has been previously been changed into having a suite then that portion of the house is already subject to capital gains. You need to unchange the structural items to remove it from capital gains. That is sort of a no brainier. I will add that to the list of clarifications to the minister.
I made a couple of phone calls to the old boys network to see about a direct contact to get this moving. Finding a quick, cheap source of revenue that does not involve legislative changes is always a gold star for any bureaucrat.
I am a bit bored so this should be fun.
1st bullet: my accountant advised that “relatively small” = 50% or less, and I assume that’s what other Victoria accountants are advising, too. At any rate, “relatively small” is not specific.
2nd bullet: I personally did not make any structural changes to my property. Those changes occurred under a different owner of the property. Again, somewhat ambiguous.
3rd bullet: accountants who know what they’re doing don’t deduct CCA for clients who have an interest in continuing to qualify for the PRE.
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/principal-residence-other-real-estate/changes-use/changing-part-your-principal-residence-a-rental-business-property.html
I am also going to suggest to the minister that the principal resident declaration also contains a section detailing any rental unit specifics within the house.That should make it easy to identify any capital gains that need to be declared. It can be one of those questions asking if any portion of the house has ever been rented during your ownership and, if so, continue to section “B”.
It should bring in enough revenue so that the Minister can have her own private jet.
Thanks Barrister, that’s a good point that a letter from a professional should convince the CRA that you are not guilty of “willful blindness” vis a vis gross negligence by the Canada Revenue Agency.
I’ll match your $20 donation to LeoS getting a Tax Ruling just to get a Ruling to backup the tax interpretation which clearly says:
“…the conversion of a portion of a taxpayer’s principal residence into a separate, self-contained domestic establishment (housing unit) to be used for earning rental income will generally result in the application of the change-in-use rules…” i.e. Capital Gains would be payable.
That you managed to get a CPA “thinking” is not quite enough for me to change how I would approach this today, given what we know.
(Keep in mind, it’s all academic, since I’m not planning to cease renting my suite, or sell, anytime soon. But in these discussions, I’m arguing as if that weren’t the case—a sort of devil’s advocate.)
Since just about all accountants in Victoria are advising that this is legal—and filing clients’ tax returns this way— I’m not convinced it’s a question of whether or not you’ll get “caught.”
Are you suggesting that Victoria accountants, en masse, are knowingly participating in and facilitating tax fraud on a wide scale?
Koalas: As near as I can tell Fernwood is undergoing gentrification and I suspect that prices will rise to match Fairfield and James Bay.
I understand that it is your preferred location but it sounds like you are already priced out of the area. It might be wise to start looking seriously at a few other areas such as the Gorge where prices are still reasonable.Being in the trendy inner core seems to be particularly attractive to millennials and even if the market slows I question whether you will see major price drops outside the luxury 2 Million plus homes. I would caution that my ability to predict real estate is more often wrong than right but for what little it is worth there is my opinion.
I think it would be interesting to track whether the number of properties held by numbered companies drops after the new new disclosure laws.
I believe that the assumption behind the law is that a lot of real estate is being held by dirty money and hidden by number ed companies and trusts. If the assumption is true then one would expect a significant drop over the next year or two of these vehicles. If the numbers remain roughly the same then one has to wonder if we have created another layer of bureaucrats to little or no purpose. Too early to tell but the results might be interesting.
Freedom: thank you for the tip re. Shelbourne and Richmond townhouse. They do seem nice but are a little further out than i would like. I am looking for something more central. However, do not need something so “new and shiny”.
It looks like Fernwood is lined up to get a bunch of new housing in the next few years. A bunch of subsidized rental units (appt. and townhouses) which is great and some duplexes too. I doubt I’ll be able to afford the new townhouses – the last 2 new ones that came up for sale a year ago sold for about $900 000. Still, increased housing in my preferred location can only be a good thing!
Should I be writing the Minister of National revenue and requesting that the CRS clarifies their position on self contained rental suites in a principle residence. I am sure that Introvert would think that this might be a good idea. If I have some spare time I might give it a go and report back to the group. I did a quick on the back of the envelop calculation and I am guessing that the government might be missing out on about 100 million in revenue just from BC. Not a huge amount of money for Ottawa but not trivial either.
Koalas,
FYI: there are a some new townhouse developments around Shelbourne ST and Richmond Rd and other urban areas, if you are interested:
https://victoria.citified.ca/townhomes-subdivisions/
There seems to be no end of “little old lady” scenarios conjured up by those who oppose measures to address the housing crisis. The whole point of appointing an executor is to get someone who has all their marbles. Ignore this and you (or rather your beneficiaries) are headed for a heap of trouble regardless of what the province requires for beneficial owner reporting.
Let’s wait to see how many people it is. For example, there are currently 48,000 properties (3% of 1.6m) that still haven’t declared their spec tax status as of May 17 despite the March 31 deadline and a reminder. That’s heading for a July 1 train wreck when they get sent big “negative-option” tax bills. Also notable that the govt doesn’t release any numbers about how many people have declared as owing spec tax. https://globalnews.ca/news/5290922/b-c-reports-high-returns-on-speculation-tax-forms-99-per-cent-will-not-pay-tax/
Requesting a ruling is an interesting idea, but requires a $2500 deposit and are billed time at $100-$160/hour so a substantial cost. Technical interpretations are I believe free but they tend not to comment on anything that sounds like an individual issue so doubt they will be super useful. Let’s see if any of the local accountants have anything to say on the matter first.
LeoM: The point of a written opinion from a tax lawyer or CPA is two fold assuming that you are going to roll the dice and not report CG on your suite. First, it is strong evidence that you did not intentionally commit fraud and, secondly, it likely puts the professional on the hook for any penalties and interest due to negligent advise on their part.
I suspect that Introvert would be hesitant to ask for a tax ruling since it is likely to go against him and then he would be stuck with paying CG.
Rumour has it that the CRS has finally gotten around to starting a working group focusing on suites. The run up of house prices in Toronto and Vancouver is a gold mine waiting to be exploited Mr and Mrs Smith owns a house but both Mr.and Mrs Smith and John White have filed income taxes with the same address for the last five years. Principle residence exemption sale filed in the last tax year. Giant red flag,
When house prices were going up only a few percent a year it was not worth the bother for the CRA. Certainly different these last few years.
PS. I would be happy to throw in 20 bucks for a clear tax ruling on whether a principle residence with a self contained basement suite with kitchen and bathroom that represents 25% of the houses floor space is subject to CG.
The feds may not be competent software developers/purchasers (which is an entirely different discussion) but you better believe they can motivate themselves to collect on debts they feel they are owed.
Not that it matters but since you brought up your guys bill rate, the cpa whose reply I quoted in my last comment billed over $400/hour. He’s the kind of guy cpas across the city called for guidance on various topics and he didn’t know but the links and articles I sent him got him thinking.
Anyways, here’s the thing- what do you have to lose by asking? The guidance is in my mind very clear and filing your return correctly almost certainly won’t “cost you money” if you did in fact sell a house with a suite and owe it. If you get caught, the Cra will make sure it wasn’t worth your while to not pay them.
Also keep in mind that in addition to your own confirmation bias, most of the accountants have their own. They are mostly fairly heavily invested in real estate themselves and don’t want the suite rules to be true, because they themselves benefit from the current interpretation. With the industry doing things one way, not many folks will counter the status quo, especially when it costs them and their clients money.
To be honest this particular rule is quite a peculiarity- I have never seen such disagreement when it comes to clearly worded tax law, maybe goes to show how vested in re everyone is. One of my cpa buddies is only invested in re, didn’t even want to talk about it.
Not really a big issue though. There will be a few people that currently have properties in trust that will miss the transition period. After that it will become standard procedure to file the paperwork when it goes into trust and no further innocent old ladies will be traumatized
The feds can’t even figure out a system to pay their employees the correct amount of money.
Why would I do that? The handful of people that we’ve heard of who have had to pay CGs on a suite are people who happened to be audited or involved in a court case.
Part of an accountant’s job is to stay current on the rules so, no, I’m not going to print off stuff I found on the Google and try to “educate” a professional in his own area of expertise, at $125/hr no less.
Also, trying to convince my accountant to file my returns in a way that costs me more money and goes against his best advice seems insane to say the least.
Things could change in the future; CRA could change how it does things and whom it is making an effort to target. But these are my thoughts for today.
Koalas perhaps we could pool our resources and buy something very big and nice. Some pros about myself: I’m very clean and keep a clean house, I’m never late with bills, and people tell me I’m friendly. Some of the negatives: I work from home a lot and when I do I listen to loud music (a very wide variety of it, some of it is noisy), I don’t cook, and I don’t do anything that involves work outside. Also, I’m a vegetarian and red meat grosses me out so that can’t be cooked inside – come to think of it chicken and fish are pretty gross too.
Indeed, had a similar problem. Rented a nice townhouse when I arrived in Victoria and was assured I could stay there for 10 years or more. (owner had moved to another country) Eight months later, I found out the owner’s son was moving in so had to move after a year. I think I would be fine with renting if conditions were similar to those in Germany for instance. Rents are typically not very high and people stay in the same house for 20 years or more sometimes. I knew a couple who actually worked out a deal with the landlord and did a complete renovation of their rented home. Not sure who paid for what but the tenants contributed. Through that renovation, they built a separate suite which they, the tenants, then rented out. My sense when I was in Germany is that some renters genuinely see their rental as their home. Here, it’s clearly different. Always feel as though the sword of Damocles is going to bear down on my neck…
Hi all I am a cpa but am not in public practice. Over the last year, I have brought up the tax interpretations, the common law and even the golombek article with about a half dozen of my cpa friends who still work in public practice. None of them advise their clients to claim the suite as a CG but that’s only because none of them have read the articles or the interpretations. I took time to walk one of them through the Cra site and the tax interpretation and the response I got back was “oh…that’s scary.”
Remember – late fees and interest do apply. If you are suspected of fraud, I believe the penalty is double.
Good suggestion Barrister to get a written opinion from a professional, however a written opinion from a lawyer or CPA is not binding on the Canada Revenue Agency. A less expensive, and legally binding, method is to pay a few hundred dollars to the Canada Revenue Agency for an official Tax Ruling. Tax rulings by the CRA are legally binding on the CRA.
LeoS, maybe it’s time to resurrect your past suggestion that we all chip-in $10 and you get an official Tax Ruling on self-contained suites within a principal residence.
Well of course, but the executor might be a little old lady. The main point is that suddenly requiring every trust in BC that owns property to file beneficial name declarations on time is going to result in people missing the deadline, especially old people. And, given this govt track record, we should expect them to then to get a “negative-option” treatment with a fine.
A few levels of confusion here. The property doesn’t become owned by the estate until the elderly owners, who I would think had the property in their own names, pass away. Estates don’t have owners, they have beneficiaries. And an estate is a trust in itself. Also estates are managed by people called executors, who are chosen specifically to carry out the legal obligations of the estate.
Right, I could be wrong, and maybe in six months time there’s a govt press conference where the BC govt is proudly showing off a mailed in registry self-declaration (postmarked from a NYC Supermax Prison) listing the beneficial owner of a Vancouver British Properties house as …. “El Chapo” 🙂
And the govt then tells the press…. “you see!… that’s how we catch criminals in BC, not with investigations, we simply ask them to self-declare!”
@ Patrick
I think we’ll just have to wait and see how this plays out. I’m curious how they will handle foreign buyers, that will be interesting to see.
This registry is a first step in a series of steps I imagine. And let’s look at this logically – if you’re in government or the CRA and you now have access to names/addresses and they cross reference and your 10 million dollar house isn’t adding up to the 50k salary you’re declaring, or your housewife status, ding ding ding. You think they’re just going to take people’s name or bogus name at face value and drop it? I highly doubt it. My money is on them looking into the luxury market first. This gives them the opportunity to dig into these properties that are on the radar – and it gives journalists who have been key in exposing all this corruption, the opportunity to dig and expose more corruption.
Not to mention, if you’re a criminal, you’re going to go where the pickings are easy, and by putting stuff like this into play they’re making BC a harder market to operate in. Will some people get through? Absolutely. Will a lot move on to greener pastures? I imagine so.
Overall, I think it’s great, let the games begin!
“Many estates have trusts as owners, (as setup in the will) so I’d expect “widows and orphans” to be hardest hit.”
Can you elaborate on this?
If you’re right, perhaps a reason to re-visit adding adult children to title as joint tenants.
Patrick, I think you are being very judgmental suggesting that meth and heroin dealers would lie when filling out their declarations.
I definitely might be wrong but most of the basement suites I have seen in houses have their own entrance. Sometimes the laundry room was shared but generally they were self contained apartments.
The hope here is that some criminal who has stolen/laundered $30m and bought a Vancouver house and hidden his identity behind a company/trust is somehow going to get his name exposed next month?
Well no, that’s not going to happen. For starters the govt doesn’t have the criminal’s name. That’s the whole point of needing a registry. They have to start sending out declarations asking the owner to tell them (confess) the name during a “transition period”. And filing a false name, if caught and proven, will cost the criminal-owner $100k (only about 0.3% of home value or 1/2 of a years property tax on a $30m home ).
Do we expect criminals to “self-confess” on these govt forms, and send them back to help the govt catch them, because they are afraid to put a false name on the government form and face a $100k fine if caught? More likely that they’ll all come back with bogus names or untraceable foreigners, and the govt and public won’t know anything more than before the registry.
Just like the spec tax declarations, the people that will face the negative-option “land registry” $100k fine will likely be honest, elderly BC people that don’t send the beneficial name declaration in on time. Many estates have trusts as owners, (as setup in the will) so I’d expect “widows and orphans” to be hardest hit.
Fair point on both counts.
I’m not factoring in non-financial considerations such as privacy, inconvenience, etc. And I’m not factoring in potentially better investments. (I tend not to factor in the latter because I don’t invest in the stock market.)
Here’s hoping our good luck continues!
We’ve had three sets of tenants in 9.5 years. First couple were acquaintances and were excellent but left Victoria for a lower cost locale after about a year. Second couple were students who were fine but only stayed eight months (we always do month-to-month agreements). Current tenant has been with us for seven or eight years and is the best of all of them, and not just because of the duration of tenancy.
Looking forward to it.
I am reaching out to the accounting firms in Victoria to see if any of them are willing to explain their reasoning why a PR with a suite would still qualify for 100% personal residence exemption to capital gains. Will publish the results.
Viola: the condo that I had rented for eleven months also sold a couple of months after I had bought. I guess that is the advantage of being in a purpose built rental.
Sure. But something to add in to see if it’s worth the hassle or if you’re better off investing in something else.
I’ll pre-empt your reply there by acknowledging we are having this discussion on the traditional lands of Introvert, whose tenants have never been any hassle. 😉
I am reaching out to the accounting firms in Victoria to see if any of them are willing to explain their reasoning why a PR with a suite would still qualify for 100% personal residence exemption to capital gains. Will publish the results.
“With the growth of Airbnb these rental scams have become a lot easier to do. There should be a special corner in hell for these fraud artists since often the most vulnerable are targeted.”
I’ve been a landlord since 2013 and have had to say no to several people who really need housing. There were a few times that I felt really bad for the people – people with young children and limited incomes. Basically they have a hell of a time finding anything to rent. One woman was living with 4 children in her cousin’s 1 bedroom basement suite, then they sold, then she moved, then they sold, then she applied to me. I didn’t approve her application and still think about it occasionally. Imagine if she finally found somewhere only to have it be a scam that takes all her money – horrible.
One of the major upsides to owning, especially if there are children, is that the property can’t be sold out from under you. That’s a big part of why I wanted to buy as quick as possible when we moved to Victoria. And, wouldn’t you know it, 6 months after we moved out the place we were renting was put on the market…
It can’t hurt to do the math, but it’s not necessary.
Suite income earned over 5-20 years exceeds (often by a tremendous amount) CGs owed at disposition for most people in most circumstances.
In other words, it’s a financial net win even with CGs owing. And if CGs aren’t owed, consider it gravy. Lots and lots of gravy.
If my understanding is correct, it’s not only when you sell but also when you cease to rent the suite—what’s called a deemed disposition.
Great article, Andy.
One, most suite owners have to rent them out just to make the mortgage payments, so tax policy won’t make a difference. Two, the capital gains hit is when they sell the property, and most people don’t plan that far ahead. Three, I don’t think a lot of suite owners are aware of the CG policy in the first place.
Apparently a lot of amateur landlords don’t realize that only net rental income is taxable and so don’t declare, thinking they are saving a lot of income tax. Their strategy might also be to get away without paying capital gains on the suite by not telling CRA they have one, though I doubt many are that sophisticated.
With the growth of Airbnb these rental scams have become a lot easier to do. There should be a special corner in hell for these fraud artists since often the most vulnerable are targeted.
Gonna be interesting! 50% at the high end. Ouch. Excellent article.
“Chinese courts have begun jailing nationals for life for moving money illegally out of the country, part of Beijing’s ongoing effort to halt currency outflows, Vancouver lawyer Christine Duhaime explains.
Ms. Dumaine, an expert in financial crime, represents Chinese banks hunting fraudsters in Vancouver. Many took out sizable business loans in China, then fled to B.C.’s Lower Mainland, where they hid the money in real estate, shielding their identities through corporations, numbered companies and trusts. Transparency International, a corruption watchdog group, estimates that 50 per cent of owners at the high end of Vancouver’s housing market have hidden their identities this way.
Like it or not, their identities will be made public next month, when the province unveils a residential property registry. This could be another reason for the flood of new inventory, up 46 per cent over last year, says Ms. Duhaime: Some owners may be trying to get their money out of the market before the disclosures take effect.”
https://www.theglobeandmail.com/real-estate/vancouver/article-bubble-trouble-in-vancouvers-housing-market-pain-has-set-in/?cmpid=rss&fbclid=IwAR1RD7Fg9oPSpker8zLlDn8aN3MetYx6JYmj2Tt8GJ5iNQ1MrX-skrO_rYw
If you hit Paywall, can view it on this thread:
https://forums.redflagdeals.com/vancouver-housing-bubble-1194032/833/#p30938157
As to suites, I would suggest that you get the written opinion of a tax lawyer or the written opinion of a CPA.
This is not my area of expertise but if you basically have a self contained suite with its own kitchen and bathroom you pretty clearly have an apartment. If it also has its own entrance then that would be icing on the cake. Dont see how that should be any different than owning a duplex where you rent half and live in half.
Dont want to start the debate on here again but I would not gamble on the CRS continuing to turn a blind eye.
freedom_2008
Very true! Although I think a title search would be easier and less invasive than asking them to see their property tax notice.
Generally an agent will be upfront about their position and working for an official management or real estate company if renting out a place. If it’s a ‘friend’ then I would use caution.
With rentals, I always went directly through the owner or a management company. I personally wouldn’t rent through a “friend” of the owner unless I had some major reassurance it was legit.
If the landlord is the owner, you can always ask to see the property tax notice letter (which contains owner name) to confirm; But often times, the landlord may not be the owner, but an agent or a friend of the owner, that’s getting a bit trickier to confirm. 😉
Correct: https://ltsa.ca/sites/default/files/myLTSA_Services.pdf
For anyone looking to rent a place, if you’re dealing with an individual landlord (not a property mgmt co) it may be a wise idea to pull the title on the property. That way you know that who you’re renting from is the actual owner. There’s some creative rental scams out there:
https://www.cheknews.ca/langford-woman-warns-of-inventive-new-rental-scam-after-losing-thousands-559108/
@ Marko
Do you have an LTSA Enterprise account? I don’t think you can search by name (only by PID) with an LTSA Explorer account.
Yeah I don’t see any ambiguity. There is no suite that hasn’t been built to be a separate suite or has had structural modifications to become one like adding a kitchen.
Common practice by the CRA has clearly been to look the other way on this but I would do any suite math based on having to pay CG on the suite portion of the home.
I would get my accountant to put that in writing or at least explain why a suite that was created with structural modifications still falls under the CRAs exemption. As far as I know we haven’t actually heard a reason why the structural modifications clause doesn’t apply. If the accountants here are so sure then I’m sure they can back that up with an explanation.
I’m certainly open to the possibility that a suite doesn’t endanger the principal residence status but if i had a suite I would want more certainty than an “it’s fine don’t worry about it”.
“The Judge, in the tax court case I posted, noted that the defendant used the same logic as Introvert and he also noted that the defendant used two different accountants who presumably gave similar advice as Introvert’s accountant. Notwithstanding that defence strategy, the judge still found the husband guilty of “willful blindness” and imposed tax penalties congruent with gross negligence of the Canada Revenue Agency tax laws.”
If this is true then it’s a stupid policy. There’s a housing crisis, we need to incentivize people renting out their suites, not scare them away from it.
Personally I have a general rule to always follow the advice of professionals that I meet in person, not anonymous people on blogs.
Check out (CIBC top accountant and Nation Post tax columnist) Jamie Golombek’s article wrt rental suite:
https://business.financialpost.com/personal-finance/beware-the-big-tax-hit-that-could-be-lurking-in-your-basement-if-you-decide-to-rent-it-out
The Judge, in the tax court case I posted, noted that the defendant used the same logic as Introvert and he also noted that the defendant used two different accountants who presumably gave similar advice as Introvert’s accountant. Notwithstanding that defence strategy, the judge still found the husband guilty of “willful blindness” and imposed tax penalties congruent with gross negligence of the Canada Revenue Agency tax laws.
The Judge also noted that the defendant’s accountant “must bear some responsibility” however, I doubt that any legal action against an accountant would be successful because you were subject to CG the moment you first rented the suite and I doubt you got a prior written opinion from your accountant stating emphatically that your suite would not be subject to capital gains taxes.
totoro’s accountant too. Unless all three of us have the same accountant (unlikely), accountants in Victoria appear to be interpreting this issue uniformly.
And surely these accountants’ actual filing experience with respect to suites and CGs confirms their interpretation.
I’ve declared all suite income since Day 1. And my accountant has explained to me that I meet all requirements for the PRE and so no CG tax will be owing at disposition.
People can continue to dig up cases and web pages. But until my tax professional advises me otherwise, I’m going with his expert opinion.
+1, same opinion from my accountant too. I guess you could get dinged but CGs on a suite does not happen to be common practice on a suite right now.
I’ve declared all suite income since Day 1. And my accountant has explained to me that I meet the requirements for the PRE and so no CG tax will be owing at disposition.
People can continue to dig up cases and web pages. But until my tax professional advises me otherwise, I’m going with his expert opinion.
My sense is that extraordinary circumstances (e.g. CRA audits, court cases) increase the odds of having to pay CGs because of the greater scrutiny.
IMO, the only “great information” provided was the sound advice to declare one’s suite income to CRA.
Have a friend in Vancouver. About a year ago she was looking for a townhouse but was having a hard time because there was a ton of competition in that segment. Prices in the top end of the market were going down but there was a ton of pressure on the middle of the market. Texted with her yesterday and she said prices are now declining everywhere, but to different extents. We are chatting on the phone next weekend and I’ll get more info then. Just anecdotal but still interesting.
What landlord doesn’t declare rental income? That’s not smart.
LeoM: Great information for everybody out there on the tax issues.
Report suite rent? I knew someone who rents out his one-bed downtown condo while he is away (for 3 or 4 years now) and never claimed rental income (the net rental income is probably low).
Be it rental income or suite CG or cash payment under the table or off-shore money hidden in Cayman Islands, there are lots treasure to be hunted by CRA, just what and how to get the biggest bang for their (our) buck …
The basement suite rent/capital gains question is back yet again with Jerry’s post below and LeoS response wondering if this is a re-hash of the court case mentioned back in 2016.
If any of you amateur basement suite landlords believe that you don’t need to report basement suite rental income or if you don’t believe you need to pay capital gains tax when you sell your principal residence that has a basement suite, then I suggest you visit the website for the Federal Tax Court of Canada; there you will find many court cases involving this topic. Here is one case that took me about 45 seconds to find.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/31174/index.do?q=Suite+capital+gains
And for those of you who missed the post last year on the same subject, which included the following link, from Income Tax Rulings Directorate, I suggest you read this carefully.
https://taxinterpretations.com/node/452886
So there you have it, clear information on both the tax interpretation and the Tax Court ruling.
And one last point, the tax penalties for tax cheaters can easily double your tax bill. Pay close attention to the term “willful blindness” as a description of what can constitute gross negligence by the Canada Revenue Agency.
Less than one percent of people caught not reporting their capital gains when selling their principal residence, with suite, ever go to the Tax Court; most people just luck their wounds and pay their tax and penalty when caught, however there are still many examples on the Tax Court website if you need more convincing.
Nope. But had governments led by other parties before NDP government done anything preventing the issue?
I see we are between 4 and 5 now in BC real estate:
1 Enthusiasm,
2 Disillusionment,
3 Panic and hysteria,
4 Hunt for the guilty,
5 Punishment of the innocent, and
6 Reward for the uninvolved.
https://en.wikipedia.org/wiki/Six_phases_of_a_big_project
What a waste of time.
Patrick i’m happier with what the NDP have done in the last two years then what was done in the previous 5 (housing and daycare issues). And by the way 1/3 of something is better than 100% of nothing. THese audits are related to “income declarations” – taxes are filed Federally – so of course this is going to be shared with the Feds.
Very interesting Jerry. Can anyone figure out what court case he is referencing? No link, no specifics that would allow it to be searched. I hope it isn’t just the 10 year old case we discussed 3 years ago and is actually something new. https://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/
Many people posting here seem to have a suite-tooth and are perhaps unwittingly exposed to tax upon sale of their residence. This from Garth today. Cat, meet pigeons…..
“Turns out a recent court case has set the bar lower. A judge ruled a guy with a house outfitted with a basement suite that he never rented, took no income from nor ever offered to any tenant or guest had to pay capital gains on that entire level of his place when he sold. The reason came down to the definition of a home. The judge said it’s where you hang and carry out the daily functions of living. An empty suite (even if in the same building) that an owner does not use therefore doesn’t form part of the home. Any profit made on the real estate must be apportioned to the two areas of the house – the residential part and the unused suite. One tax-free, the other taxable.
Suites are epidemic now, of course. Given the cost of real estate, hauling in a renter is the only way a lot of people can swing home ownership. Vancouver, for example, has the highest proportion of residential suites in North America. But it’s probably a safe bet a huge whack of these amateur landlords are also tax cheats, failing to report the income they use for mortgage payments and property tax. The CRA has one of its famous ‘projects’ set up to ferret out and slap around such households. The interest and penalties – atop income tax owing – can be enough to ruin your day. Or year.
As for capital gains, you can only claim the exemption on a PR by filing out the schedule attached to your personal tax return. Be aware it’s a legal document. No do-overs allowed. And now that all addresses are catalogued with the revenue cops, any property with a rental history is known.
When the principal residence exemption registry was announced the feds fibbed, saying it was another safeguard against foreign owners. But obviously not. In the years to come you’ll understand much better why governments want to know everything about your real estate.”
The BC govt must love supporters like you. You’ve asked them for affordable housing in Victoria, and two years later they deliver you “maybe more CRA audits in high-end Vancouver RE housing transactions ”, and you’re thrilled with that. And of course the “ extra coin” from that goes to the CRA goes 2/3 to Ottawa and 1/3 to BC, and you’re cool with that too. Have they done anything specific for affordable housing in Victoria, or is that too much to ask?
Patrick I believe most people believe that the majority of the issues are coming from Vancouver which just happens to impact the whole province via people selling their houses there for crazy amounts and moving to Okanagan/Vancouver island. I haven’t seen a lot of people saying/implying that Victoria is a mecca for illegal dealings.
That being said in regards to the new registry – i wonder if this is more for work with the CRA and income tax evasion. Remember the article talking about how those audits in BC in 2018 lead to reassessments of 100k EACH PERSON (more than 5x the amount of Ont).
https://www.richmond-news.com/b-c-real-estate-audits-reveal-widespread-tax-evasion-1.23643194
“After reporting a record number of B.C. real estate audit assessments in 2018 – amounting to about $170 million – the Canada Revenue Agency is expected to receive a treasure trove of data from the B.C. government tying home ownership to income declarations.”
My guess is this will be another tool in the audit tool box for the CRA and BC to make some extra coin. “Oh you have a numbered company which claims it made 30k last year yet purchased a 3M dollar house? Pay up.”
But that is simply a guess. BUt if I was the CRA and saw that BC had a lot of people circumventing a gross amount of income tax i’d be putting a focus on it.
And if that is one of the reasons then i can’t see many people taking issue with it.
.
Not needed. The govt have assured us this is a widespread problem. Moreover, there are two RE agents on every sale, so if a Victoria RE agent has sold hundreds of houses over a career, he’s likely encountered many “Chinese” buyers, and could tell us if they were “shady”, use “hidden names “ in the registry, or paid for the house with “duffel bags of twenties.”
@Patrick,
have you asked chinese agents? ..
Leo (and any other Vic RE agents)
Just curious as to how important an issue this is in Victoria. In your entire Victoria RE career, how many examples can you recall of clients using hidden identities via the name registry that appeared “shady” to you in terms of paying taxes or source of funds.
I’ve asked one Vic RE agent and their answer was “zero”. If that is also your experience, do you expect this name registry to actually move the needle on Victoria real estate?
If the legitimate investment is predicated on flipping real estate secretly and without paying taxes then I’m not sure we want it, even if it does drive some of the economy
Viola,
Yes, the land titles website says you currently need an enterprise account to do a name search….
https://help.ltsa.ca/myltsa-explorer/what-available-search
“Historical titles are not available for order using myLTSA Explorer. Methods of title searching–other than by PID and title number–such as owner name, short legal or charge are not available. If you require the above, or more than 40 items annually, you may wish to consider registering for a myLTSA Enterprise account.” (professionals, and government and business customers)
Others have pointed out that you can also do a name search if you show up in person.
Right, and if we see no increase in listings or effects on ML or RE , but we see rising unemployment and falling GDP in BC, shall we conclude that all these govt measures (fbtax, vacancy tax, Airbnb, satellite families, names registry, proposed UWO, higher taxes) have merely served to discourage legitimate investment/activities and damage the BC economy?
If you don’t have an account you can just go to the physical BC Land Title office and search.
Anyone can do it. My mistake on the first version of the article I only ever pulled title by PID. Has since been corrected
“I’ve always been able to search by name. Costs $12 to pull a title.”
But you have an account, right? Can anyone get an account? Because I thought Patrick said it was professionals that get these accounts.
#59866 “if you have an enterprise account, ( professionals, and government and business customers.)”
I’ve always been able to search by name. Costs $12 to pull a title.
Right, Ive heard there is a “transition period” where companies/trusts will need to file this information to be added to the registry. That also means that people’s names won’t be disclosed without them personally having filed the information, so at least people with personal safety concerns will be aware of the change, which is good.
Not what I said. Again, the info is not in current database system, thus the proposed new rules to add the info in, in the very near future …
Oh so the new system still doesn’t know the beneficial owners so will display the same info as before without the name. That seems no better than the old system (except for newly registered titles) until every homeowner with a company/trust listed as owner is required to refile with beneficial names. When is that going to happen?
“For the BC land title searches, with the previous system, if you have an enterprise account, ( professionals, and government and business customers.) you can already search by owner name, so the new law isn’t adding that as a brand new feature…What is new with the beneficial owner registry, is that you would be able to search by beneficial owner names, where the owner is a corporation or trust.”
Are we sure that the new system will still require people to login to an enterprise account to do the search? If so, I think that addresses a lot of the privacy/security concerns. But then I don’t see how that much “transparency” is being added under the Act.
I can’t imagine the govt would be stupid enough to make an easily searchable online database using names as a search field, but such assumptions can be dangerous.
If there is actually a lot of bad money hidden in trusts and corporations should we be expecting a big bump up in listings as they flee the province? Conversely if there is no noticeable increase in listing was this then a tempest in a teapot?
Not in current database/system (thus the new proposed rules). Also please note, the advanced land title database is NOT open to public on internet, not currently nor likely in future. One has to go to BC Assessment Victoria office at 3350 Douglas St and the office clerk there has to login on their own title database computer, then you can do the search only there. The clerk could/might ask for your search reason and could/might reject you.
Leo, I see you already spotted that and updated the article. So ignore my previous post. It will be interesting to hear if safety/privacy advocates are satisfied with the new system.
Also, if the current owner is XYZ trust, does the land registry already know the names of beneficial owners? If it doesn’t, how could it display the names? Maybe this only works on a going forward basis?
For the BC land title searches, with the previous system, if you have an enterprise account, ( professionals, and government and business customers.) you can already search by owner name, so the new law isn’t adding that as a brand new feature https://help.ltsa.ca/myltsa-enterprise/title-search-owner-name
What is new with the beneficial owner registry, is that you would be able to search by beneficial owner names, where the owner is a corporation or trust. I’m nit sure how many people have hidden their name for safety reasons, and what the existing methods are (other than using a company or trust which would hide your name and under the existing system, but show your name and addresses under the new system),
Too many properties and lost track of a few?
“My bad, searching by name is actually available right now in the land title database, I’ve just never used it.”
So, under the new system, a person will have to register for an account to search by name. Isn’t that how it currently works?
https://ltsa.ca/property-info/search-title
When I look at the above link I don’t see the ability to search online by a person’s name to determine where they live. I would say that if this is possible with the new system, and is not under the current system, that is an important change. Perhaps searches in person can currently be conducted using only a name at LTSA, but not online, right? Or, am I wrong? If so, please post the link. Would like to search my name.
My bad, searching by name is actually available right now in the land title database, I’ve just never used it.
So really there should be no difference from a privacy perspective. Have updated article.
Just having some wine, but some preliminary observations: if it is made aware that there are risks to publishing a person’s address when a name search is done, and nothing is done, or not enough is done, to address this, and harm results, perhaps there is a liability issue there? Not an expert, just wondering about that…
Yeah I’d be curious to know what their thinking is. I actually had a version of the article where I said I suspect searching will remain the same as it currently is because that makes the most sense but luckily I decided to consult the act before leaving that assumption in.
It is tough to imagine the legitimate use case for public searching by name outside of journalists. Of course the fees to search will deter any casual lookyloos so this won’t be a mass problem, but it is substantially more powerful than what we have right now.
And why bake the ability to do that search into the act itself? Why not just say search by PID is guaranteed and then additional searches as prescribed?
I have to agree with Patrick as to the public search of a name is rather dubious at best. You are going to need an army of bureaucrat to deal with the exception applications for every policemen, all judges, senior public officials, politicians and a hundred thousand divorced people who feel at risk. Frankly I dont see the public purpose to opening this up as opposed to the public detriment. It would be easier to just put in an exemption to the act were an investigative journalist or an academic could show good cause why they need access. To be clear I dont have a problem with law enforcement or the taxing authority to have access but the right to privacy should be preserved as much as possible.
LeoS,
Great post. Thanks.
This seems like a really bad idea, threatening the safety of many BCers.
It isn’t possible now to search by name , but from what you describe it will now be possible to search for a name and see all addresses for them? There have been many attacks on specific people, including lawyers, doctors, judges, celebrities, ex-spouses, refugees etc.
Allowing people to apply to hide their name isn’t sufficient. For starters you need to show the registry that there is a “reasonable” risk that your safety is already at risk, and wait for the registry to decide if they’re going to hide your name.
But maybe a lawyer or judge doesn’t know in advance that their safety is at risk. Maybe he’s got no enemies on Monday, but makes an enemy on Tuesday that can now look up where he lives.
IMO, the search by name feature should only be available to govt and tax officials, so it stays non-public.