B.C. Green party MLA Andrew Weaver isn't the only politician who wants to amend regulations to determine who's investing in residential real estate.
It's also become a hot issue in the Big Apple.
New York City mayor Bill de Blasio's government has ordered shell companies that buy property to provide far greater transparency.
It comes as Weaver is trying to get other MLAs to support his recently introduced bill to enable governments to better track sales of B.C. properties.
According to a New York Times article, the names of all people involved with the shell company must be disclosed to New York City's finance department. It came after the newspaper revealed that high-end properties are being bought by shell companies controlled by international buyers who've been the subject of government inquiries.
The New York Times also reported that more than half of 2014 condo sales over $5 million were made to limited liability companies. The change is designed to catch property investors who evade city income taxes by saying they don't live in the country.
Canadian cities, including Vancouver, can't levy income taxes, so that's not an issue here.
There are no records on the number of transactions in B.C. involving limited liability companies.
Weaver seeks greater transparency
On July 16, Weaver introduced the Land Title Amendment Act, 2015 in the legislature.
According to B.C.'s only Green MLA, his bill would enable the government to determine foreign-investment flows and the role that corporations are playing in the housing market.
“Smart public policy requires good information about what action is needed,” Weaver said in a media statement. “I am concerned that this government isn’t taking seriously the challenge of affordability that many people are experiencing in the Metro Vancouver.”
During Gordon Campbell's first term as premier, the B.C. Liberal government provided greater secrecy to investors by introducing the Business Corporations Act. It eliminated residency requirements for B.C.-registered company boards of directors. The registered and records office, however, must be maintained in B.C.
Section 49 of the Business Corporations Act requires anyone seeking a list of shareholders to swear an affidavit. The list can only be obtained for the following purposes:
* influencing the voting of shareholders at a meeting.
* acquiring or selling securities of a company.
* effecting an amalgamation or reorganization of a company.
* calling a meeting under two sections of the act.
* identifying shareholders of an unlimited liability company.
The law provides no opportunity for citizens (or reporters, for that matter) to obtain lists of company shareholders for any other purposes.
In addition, there are no prohibitions on shell companies buying or selling residential real estate in B.C.
Bare trusts used by investors
He pointed out that the beneficial owner (i.e. the real owner) collects revenue, determines rents, and the terms of leases. The bare trustee acts on his or her behalf.
"The legal relationship between the bare trustee and the beneficial owner is set out in a bare trust agreement," Wilson wrote. "The bare trust agreement is not registered in the Land Title Office. The beneficial owner typically owns all of the shares in the bare trustee company."
According to Wilson's piece, bare trusts enable several people to be beneficial owners with only the bare trustee registered on the land title. Individual owners of the bare trust can cash out and new investors can join without any property transfer taxes being paid.
In addition, Wilson wrote, bare trusts "provide flexibility in managing the withholding and remitting requirements under section 116 of the Income Tax Act on the sale of a property owned by a non-resident".
"Where a non-resident owner sells Canadian property, they must obtain a clearance certificate from Canada Customs and Revenue Agency," he wrote. "Until the clearance certificate is obtained, a purchaser must holdback a portion of the purchase price (25 to 33 percent of the purchase price)."
But with a bare trustee registered as the owner, there's no requirement for a clearance certificate because the trust is a Canadian corporation.
However, a bare trust comes with one disadvantage: higher legal fees.
"It costs approximately $1,200 to incorporate a trustee company and prepare the trust agreement," Wilson wrote. "Thereafter, you have the annual cost of maintaining the trustee company of approximately $300 per year."
Meanwhile, Weaver has condemned these trusts because of their cost to the public treasury. He has described these arrangements as a loophole that deprives the government of tens of millions of dollars.
"Suppose you own a $10,000,000 home or apartment building that you want to dispose of," he wrote on his website. "If you simply transferred title, like most of us do when we sell a home, the purchaser would have to pay $198,000 in property transfer tax.
"But if instead the property is in a bare trust where the trustee is a company, then you will pay no tax," Weaver added. "All you have to do is sell your shares in the company for 1$ (the company has no assets anyway), and sell the 'beneficial ownership' rights of the property to a third party via a 'bare trust agreement' which is not registered at the Land Title Office. Since no change in title occurs, no tax is paid."More