Douglas Todd: Here’s how to end migration scams by the global rich in Canada

Todd continues his series of articles on immigration scams involving wealthy immigrants, including the issue of taxation, particularly those who ‘park’ their family in Canada while continuing to live and work in their country of origin.

I am currently analyzing citizenship take-up by immigration category and business immigrants (entrepreneurs, investors) have the largest gap between relatively low principal applicant naturalization (mainly men) and secondary applicants (their families):

Canada could crack down in many ways on the scams performed by “ghost immigrants” who avoid paying their share of Canadian taxes while driving up housing prices in Vancouver and Toronto.

Immigration and tax specialists are pressing Ottawa to adopt numerous proposals they believe would put an end to widespread illegitimate migration schemes, such as those employed by two rich families from China, whose tactics were exposed this month in B.C. Supreme Court.

The case of Fu versus Zhu revealed how the wealthy families, who had together bought three expensive homes on the west side of Vancouver, had been engaging in illicit plots involving Canadian real estate, tax avoidance and lying about their immigration status.

“The problem is that there is large-scale immigration of relatively wealthy people to Canada who are not contributing significantly, if at all, to the Canadian tax base,” said David Lesperance, a specialist in Canadian tax and immigration law.

“They have bid up the housing markets in Vancouver and Toronto. They are also receiving the benefits of Canadian permanent resident status, including excellent schooling, free medical care, security and (eventually, as citizens) an excellent visa-free passport.”

Noted Vancouver immigration lawyer Richard Kurland shares much of the unease of Lesperance – including frustration that Canadian authorities are not enforcing the country’s rules when would-be immigrants fail to declare their worldwide income, pretend to spend time in Canada and obscure the real owners of their properties.

The two specialists have appeared before politicians in Ottawa to offer their ideas on fighting such scams. They agree problems have been created by Canada welcoming so many investor families, in which the breadwinners often become “ghosts immigrants” with little connection to Canada other than engaging in property speculation.

A recent investigation by the South China Morning Post, for instance, found that more than 40 per cent of the breadwinners for recent millionaire migrant households in Canada appear to have left Canada, although some left family members behind. It’s a widespread phenomenon, said the newspaper, among rich Hong Kong and Mainland Chinese migrants.

Lesperance and Kurland maintain their proposals would be especially helpful in dealing with the increasing number of trans-national “astronaut” migrants who use Canadian real-estate primarily as a place to park their capital and sometimes their offspring.

The specialists would especially target the rapidly growing number of would-be Canadians who are renouncing their permanent resident status, which some are using as a way to avoid paying taxes in Canada while still visiting often on 10-year visas.

“Unfortunately, the perception of too many (wealthy) immigrants is that cheats are not sought after or detected” by Canadian tax or border officials, said Lesperance. To eliminate the problem of ‘ghost immigrants,’ the Canadian Revenue Agency must change this perception.”

Both experts emphasize how important it is for the CRA to do far more tax audits of investors, domestic and offshore, who buy up numerous properties. Authorities should particularly focus, they say, on the dubious techniques accountants have cooked up for avoiding paying taxes on their capital gains.

In the complex world of immigration law, perhaps the most radical idea for reform comes from Lesperance, who says it would reduce foreign speculation in Canadian real estate and curtail the tax evasion illustrated by clothing manufacturing mogul Quoqing Fu in the B.C. Supreme Court case.

The judge mocked Fu’s testimony after learning he had told the CRA his worldwide income, which is subject to taxes in Canada, was just $97.11.

Instead of authorities trying in vain to determine whether would-be immigrants are physically present in Canada, Lesperance recommends rating them mostly on whether they pay significant income taxes in Canada — regardless of which country in which they spend most of their time.

There is not much wrong with rich people travelling the world to work, invest and run businesses, argues Lesperance, who is based in Europe. Many would be satisfied, he says, to hold two passports while still paying their share of taxes on their global incomes to Canada, in return for “a stable and safe place for their global operations” and their children.

Canada is losing out on these entrepreneurial newcomers, he says, because its immigration policy focuses on migrants having a sustained “physical presence” in the country. The major resistance to this idea, Lesperance said, comes from those who believe newcomers “must rub elbows at Tim Horton’s to become Canadianized.”

The trouble with Canada’s current residency-based approach to immigration, said Lesperance, is that it often doesn’t work and “we get people like the Fu family abusing the tax system, but we scare away the Mark Zuckerbergs of the world.”

Even though Kurland strongly believes Canada needs to stop exploitation of the country by high-net-worth tax-avoiding newcomers who speculate in real estate, the Vancouver immigration lawyer continues to believe there is value in immigrants integrating into the country by “rubbing shoulders” with Canadians.

Kurland, author of the Lexbase newsletter, also worries that, unless wealthy would-be immigrants who are not often present in the country simply write Canada a big cheque in exchange for citizenship, too many would have their accountants find ways to hide their riches in a trust fund.

Alternatively, one of Kurland’s more innovative recommendations is for the federal government “to very visibly invite Chinese tax collectors to Vancouver,” a move which would dramatically remind cheaters to submit to the rigours of Canada’s tax and security treaties with China, which is launching its own crackdown.

Kurland also believes that, in this new era “in which global computer systems can carefully track individuals’ travel,” it is fast becoming easier and less costly for Canadian authorities to catch people who are not following the country’s immigration and tax rules.

Ultimately, however, like Lesperance, Kurland believes the following is the most important thing that will lead to a clampdown on migration scams in Canada involving false tax claims and real-estate speculation:

“It’s a pure question of political will.”

Source: Douglas Todd: Here’s how to end migration scams by the global rich in Canada