British Columbia's real estate growth has been phenomenal, providing the means for the province to balance its budget. With this windfall though, according to a report from CTV news, is a loophole being exploited by many to avoid paying real property transfer taxes to the state.
The current tax imposable on transfers on real property is pegged at one percent for the first $200,000. The rate increases to two percent when the property is worth $2 million and anything over that is taxed at three percent. Many first time buyers are exempt from this tax. With this tax alone, a projected $1.5 billion in revenues are expected to be collected between 2015 and 2016 alone.
There is a loophole though being utilized by many to avoid payment of the tax altogether. This is done by having the property ownership vested in a trust or corporation. Even if the owners remain the same, the tax is avoided by having a corporation be the named owner.
This is legal and is common practice in commercial real estate. The problem is, the state loses out on possible revenues under the tax, thus the need to close this avenue of tax avoidance.
This has become such a pressing issue that Finance Minister Bill Morneau is studying ways and means to close this and many other tax loopholes in the Canadian real estate sector. In a report from The Star, one of the other loopholes sought corrected was discovered when information from a Panamanian law firm was leaked. In the leak, 350 Canadians were identified who had been using tax havens and shell companies to avoid taxes imposed on property purchases.
Another loophole sought corrected is the so called 'shadow economy' where the public coffers lose about $81 billion per year.