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Federal budget funding boost bankrolls tax cheat crackdown (See Waiting on Data)

Peter Mitham, Business in Vancouver, Sept 20, 2016

Tax crackdown

This year’s federal budget gives the Canada Revenue Agency (CRA) extra clout when it comes to chasing down tax cheats, including those trying to evade taxes on real estate.

The topic surged into the national spotlight last week amid reports of lax oversight by the CRA and the practices of offshore investors seeking to sink money into local properties.

The budget aims to recover $2.6 billion over five years through a pledge of $444.4 million to support the hiring of auditors and undertake investigations and verification of filings.

“Given the huge upswing in real estate prices and selling profitability in certain areas, it is very likely that the government’s investments to crack down on tax evasion and combat tax avoidance will target the real estate sector,” wrote Brett Crawford, senior manager with accounting firm Grant Thornton LLP’s domestic tax services branch, in a recent column.

The latest developments prove that to be the case, but James Painter, a senior analyst with Grant Thornton in Vancouver, said the law has always been in place but circumstances have brought enforcement to the fore.

“It’s not a new tax regime or anything,” he said. “It’s just that the background environment has changed. It’s a bigger issue now.”

Painter was working for the CRA a decade ago – but not as an auditor – when there was a similar run-up in residential prices. Tax evasion was an issue then, too, he said. However, the timely allocation of resources to address the matter was also an issue.

Conservative government cutbacks in 2012 didn’t help matters, as 400 auditors working on criminal investigations, special enforcement and voluntary disclosure programs were terminated; budget cuts the following year sought to eliminate a further 3,100 positions.

The latest budget allocation restores funding the agency lost, if not the experience. However, the extra resources are helping it pay closer attention to tax cheats.

“There’s more of these investigations happening,” Painter said. “A good accountant should be telling you there’s a risk.”

Dirt rich

B.C. farmers are land rich, cash poor, according to a new report from Farm Credit Canada (FCC).

The federal agricultural lender identifies B.C. as one of three provinces whose farmers are at risk in the event of an economic downturn because their liquid financial assets outstrip total debts by just 26%.

Producers in most other provinces have financial assets that are double their debts.

But if farmers found themselves forced to sell, the numbers indicate that their land holdings would go a long way to covering their obligations.

The capital-intensive nature of agriculture means farmers generally have a better debt-to-asset ratio than the average Canadian; right now, it’s 15.5% for farmers versus 17.1% for the rest of us.

But in B.C, the debt-to-asset ratio is about 14% – something FCC attributes to strong real estate values.

Provinces where a farmer’s primary asset is land typically have lower debt-to-asset ratios, FCC says, especially in environments where land values are rising.

Since 2006, real estate has accounted for 90% or more of total farm capital; in 2015, it represented 91.3% of farm capital – or a stunning $35 billion. Between 2014 and 2015, farm property values increased by $1.4 billion, nearly four times as much as their debts.

Waiting on data

The province had yet to release new information about foreign buyers as this column hit deadline, seven weeks after announcing its reactionary property transfer tax on foreign nationals.

However, the BC Real Estate Association credited the sudden tax initiative with knocking down the average sale price of homes in the province, thanks to fewer sales in Vancouver.

Nevertheless, activity outside Metro Vancouver remains brisk.

August year-to-date residential sales totalled 86,206 units, 22.1% above last year, and 14.5% above year-to-date sales during the heady days of 2005.

However, a Landcor Data Corp. report indicates that seasonally adjusted numbers for the first half of the year indicate a market trending below the robust performance of a decade ago. •