Crackdown on real estate cheats

B.C. urges federal government crackdown on real estate tax cheats

Here is an article in the Globe & Mail discussing the Province of British Columbia’s  (B.C.) request to the federal government that it crack down on speculation in residential housing. I have referred to this in an earlier post where those who speculate are, for tax purposes, carrying on an adventure in the nature of trade and hence subject to income treatment on their gains on house purchases and sales rather than availing themselves of the principal residence exemption.

Although an admirable position, I believe that it is very difficult for the Canada Revenue Agency to find them. Unless there is a pattern in the individual’s tax returns of buying and selling houses, a one-off transaction would be difficult to catch. You would need to physically look at the residence to determine use. Not an easy audit task for any government agency.

It’s the same old problem. We do have the rules in place. But their enforcement becomes problematic in that doing so requires human resources that are often not available. So in a sense, it becomes a “toothless tiger”.

In an earlier post, I mentioned that another way to attack this at least with respect to vacant houses is through the property tax system. Enforcement would be much easier at the local level where there are “boots on the ground”. This, in turn, would be backed up by disallowing the principal residence exemption in those cases that surface. This “double punch” would be more than sufficient to cool the flames of those who are looking to speculate in housing. But the devil is in the details.

Interestingly enough, when it comes to certain aspects of enforcing the law, the Province of B.C. takes the following view:

Mr. Kurland also suggested the provincial government should share data with Ottawa, already collected on every property sale, on whether the seller is a resident of Canada for tax purposes. He said he’s been pushing B.C. to do that for two years, because the CRA could then compare property sales data with individual tax records.

He said the Clark government told him that would go against its belief that governments shouldn’t intrude too much into a citizen’s private business.

This is commonly referred to as sucking and blowing at the same time. Privacy trumps illegality apparently in B.C. Perhaps B.C. will institute similar rules to those in place in parts of Europe – the police cannot come into homes at certain hours because it disturbs other local residents. Come on B.C., the rule of law or privacy? Which one is it?