In my blog posts For HNW Chinese the need for a Back-Up Plan is profound: Don’t leave yourself and your family under two storm clouds of risk! and New Immigrant Tax Evasion: It works right up to the moment it stops working! I described some of the dangers that those who had acquired Residence by Investment in countries like Canada, Australia, the US and others are now confronting.
In this first of a series of country-specific blogs, I will describe the specific dangers for those acquired Canadian Permanent Residence for themselves and their family through Residence by Investment programs such as the Quebec Immigrant Investor Program.
Firstly, many new immigrants to Canada are engaged in tax evasion by under-declaring worldwide income…and the government knows it!
In a judicial ruling in early 2018, a Justice of the B.C. Supreme Court detailed a sordid tale of immigration and tax misrepresentations (aka fraud) undertaken by two multi-millionaire immigrant families to Canada, both of whom declared only a tiny fraction of their worldwide income in their Canadian tax returns. This decision led to wide reporting about Canada experiencing an influx of wealthy “ghost immigrants” who are securing permanent residence, purchasing properties in Canada, and then returning to their home countries…with many of them not paying anywhere near their legal worldwide tax obligations to Canada. Meanwhile, their families reap the benefits of Canadian life including free medical care and low-cost university education.
In an opinion piece for Maclean’s, Canada’s leading weekly news magazine, I discussed this situation and offered some solutions that would work for both the immigrants and Canada. My objective analysis and practical solutions resulted in my being invited to speak on one of Canada’s major national network television news programs. In both I stressed that many individual business immigrants were under-declaring their worldwide income. I pointed out that thousands of others were making dubious claims of being “non-residents” of Canada on the basis that they had relinquished their own permanent resident immigration status ….even though their spouses and children continued to live in their comfortable homes in Canada and consume all the benefits accruing to Canadian Residents. What these self-declared “non-residents” did not realize was that if they were ever challenged, their non-residence claims were weak and could be easily over-ruled because they had retained several significant residential ties to Canada.
The 2018 BC court decision quickly became a lightning rod of controversy because it involved two wealthy families who had secured permanent residence in Canada through Residence by Investment. Not only did they fail to disclose millions in non-Canadian income (despite one of them being the owner of one of the largest textile factories in China), they even declared such a small amount of income (less than $100 CDN) that they were able to claim …and receive…a tax rebate benefit that is only given to Canada’s poorest residents.
The civil trial judge who uncovered these behaviours found them so egregious that she wrote an extensive public judgement which was released to the press. This poured national gasoline on a fire previously lit by a local community that was already very angry about a hyper-inflated real estate market which squeezed out native purchasers.
The case also opened the floodgates on investigative reporting of large scale money laundering both by recent immigrants and local crime groups with connections overseas. Local anger reached a fever pitch a few weeks ago when the young adult son of one of these Ghost Immigrants complained about the sales tax that he had to pay on a new $3.8M USD Bugatti that he was purchasing! He did not get a lot of sympathy!
Ding Chen, in a selfie posted to his Instagram account, and a March 12 photo of his new Bugatti Chiron, undergoing extensive customisation before delivery in Vancouver. Photos: Ding Chen
The Backlash builds into an Enforcement Hurricane
In July 2016, Canada’s federal tax collection agency formed a special unit of 70 auditors tasked to conduct “Lifestyle Audits”. This task force was directed to identify and investigate people whose lavish lifestyles and expensive homes did not appear to be in line with their declared incomes.
While it has taken some time for this task force to itself organized, it is now up-to-speed and very ready to investigate cases like the aforementioned unemployed student who is somehow able to own one of the most expensive homes in Vancouver and add a US$3.8M supercar to his existing fleet of luxury vehicles.
Then in March 2019 the government in British Columbia followed in the footsteps of the Ontario government by introducing a “Speculation Tax” which adds a substantial extra property tax levy for those homes which are not owned or occupied by local residents.
Finally, earlier this past week a special provincial and federal supported inquiry was announced to look into tax evasion and money laundering in British Columbia and across Canada. Early suggestions for new tools to combat money laundering include registration of beneficial ownership of properties to combat tax evasion and money laundering techniques such as trusts, corporations or “straw owners” (i.e. children, spouses, friends).
Most significant is the enthusiasm for adopting a UK technique called “Wealth Orders” A Wealth Order allows the government to seize assets such as real estate, luxury vehicles, jewelry etc. on the suspicion that the owner did not have a legitimate source of wealth to purchase such items. The onus is then placed on the owner to prove they have legitimate sources. If such proof cannot be offered, not only might assets be seized and sold but the owner can be criminally charged.
Are you going to get caught?
Along with its justifiable outrage against these abuses, the local Canadian population is also financially motivated to find and turn in tax evaders in their neighbourhood. In 2013 Canada launched the Offshore Tax Informant Program and joined a host of countries that rewards Whistleblowers who provide information to tax authorities on tax evaders. Given the success of whistleblowers like Brad Birkenfeld – who was awarded US$104M (yes, million but only 75M after tax) for blowing the whistle on UBS Group – it is no surprise that Whistleblowing has became an organized business.
It should also not be a surprise that local residents of Vancouver, Toronto and other Canadian cities are well aware of the homes are that are potentially the target of lifestyle audits and Wealth Orders…and angry enough to share that knowledge.
Likewise, there are now legions of low-level salespeople and staff at Canadian luxury car dealers, jewellers and clothing retailers who are busy copying sales records and credit card slips in preparation of their making their own whistleblowing claim that will far exceed several years of their salary.
Given this national change in attitudes, new legislation and new enforcement tools, the question abusers need to ask themselves is not “Am I going to be caught?” It is “How long can I avoid being caught?”
What you can do before getting caught up in this storm?
As with many difficulties in life, the first thing to do is recognize and acknowledge that you have a problem which, if left uncorrected, will have a significant negative financial (and potentially criminal) impact on you and your family. It might also completely unravel the Canadian element of your safe-haven plan.
The second thing to do is to seek independent professional advice on how to set things right. While there are often common elements between cases, the goals and situations of each family usually warrant a different strategy moving forward. So we strongly urge anyone who might get caught up in the approaching enforcement storm to seek a qualified and independent professional advisor who can evaluate their particular situation, understand their family’s goals, and then set out a sustainable and practical strategy 1. to minimize any negative impacts of getting onside and 2. to provide a roadmap that will achieve their family’s goals going forward.