Legislative Assembly of British Columbia
THURSDAY, JULY 28, 2016
The House met at 1:33 p.m.
[Madame Speaker in the chair.]
Introductions by Members
M. Mungall: I’d like to take this opportunity to wish huge congratulations from everybody back home for John Gordon Perrin. He was born in Creston. He just tweeted earlier today that the Canadian Olympic volleyball team has arrived in Brazil. “Finally,” he said. They are ready for their pre-Olympic training camp. Everybody in the Kootenays is so thrilled that he’s part of this team. We wish him all the best. We’re looking forward to him bringing home gold, but, John, we still love you, just for being there.
C. James: I, as well, want to add my congratulations to athletes from the Victoria area. I think it’s no surprise, if you look at the fine facilities that we have around greater Victoria. Whether it’s PISE, the Pacific Institute for Sport Excellence, whether it’s the Elk Lake rowing group, whether it’s the Saanich Commonwealth Place, we have both the facilities and the athletes to send a good group off.
I’d like to recognize Caileigh Filmer, who is a competitive rower from the greater Victoria area; Kirsten Sweetland, who is a triathlete competing in triathlon; Fred Winters, who is the captain of Canada’s volleyball team, from right here in greater Victoria; and Ryan Cochrane, who is a competitive swimmer who specializes in freestyle distance. I wish them all the best in the Olympics.
J. Wickens: I rise today to send congratulations to a good friend of mine, Natasha Wodak. Natasha is representing Canada in Rio in the 10,000-metre women’s running. Natasha and I know each other because, years ago, we worked in a restaurant together. I was always amazed at her training and how dedicated she was to running.
Natasha has won a number of races around the world. My favourite is our Sun Run. She has come first place for a number of years. My best memory of Natasha is running in the Sun Run with her where she completed it in 20 minutes, and I completed it in an hour and 20 minutes.
Congratulations, Natasha. You will make us proud. Have a great race.
M. Elmore: I’m very pleased to rise and wish the best of luck to one of our athletes heading to Rio. His name is Luke Ramsay, from Vancouver, and he is going to be competing in sailing.
It’s actually his second time at the Olympics. He made his Olympic debut in the 470 in London in 2012. He’s going to compete at Rio 2016 in a new Olympic boat class, the Nacra 17, alongside teammate Nikola Girke. The duo had a strong start to 2016. They qualified for Rio with their 15th-place finish at the Miami world cup. They also had another 15th-place finish at the Nacra 17 World Championships.
We are well represented by Luke and will be cheering for him, folks in Vancouver and across the country, wishing him well and the best of luck for a great race. He started sailing at the age of 12 and was drawn by his love of the ocean. He also has earned his bachelor of engineering from UBC and enjoys hiking and biking.
We’ll be glued to our television sets and wishing him the best, and all our athletes, in Rio.
Orders of the Day
Hon. M. de Jong: Committee stage of Bill 28.
Committee of the Whole House
The House in Committee of the Whole (Section B) on Bill 28; R. Lee in the chair.
The committee met at 1:38 p.m.
On section 3 (continued).
D. Eby: It’s a pleasure to continue asking questions of the minister about the proposed tax on what the government is calling foreign nationals buying real estate in Metro Vancouver.
It was interesting to me. During question period, I described a situation in my constituency — a student who bought a $31 million home, no apparent source of income whatever. The minister stood up in response and said: “Of course, in a situation as was described, the student would attract the additional property transfer tax. That 15 percent tax would apply.”
I mean, that was a surprise to me — that the tax would apply in that situation. Perhaps the minister can explain which section of the act would cause tax to apply to that student in my constituency.
Hon. M. de Jong: If I caused confusion…. What I was trying to convey to the member is that someone in Canada on a student visa is, by virtue of the federal legislation and this legislation, considered a foreign national.
D. Eby: There is no retroactive effect. So this student will not, in fact, be paying this tax. Is that correct?
Hon. M. de Jong: The member is correct. These provisions would not take effect until August 2.
D. Eby: There was another item that caught my attention. It was the Premier, yesterday, in the newspaper, saying that she had teams of auditors that were ready to start taking on the enforcement of this. I looked carefully through the act. I didn’t see a provision that talked about resourcing for auditors or numbers of auditors or so on. I noted that wasn’t in the act.
Then I saw this afternoon’s report that was tabled, unfortunately on the last day of session, after question period, which includes comments from the Auditor General about chronic understaffing for the last four years of auditors within the office of FICOM. FICOM, for those who aren’t familiar, is the office that’s responsible for regulating, among other things, the real estate industry.
One of the core issues that was identified was that the government has been clawing back money paid by industry for those auditors into general revenue and not hiring auditors. In many ways, that’s how we find ourselves here today, amending legislation. It’s because of the out-of-control state of the real estate industry in Metro Vancouver, due in no small part to an underfunded regulator, according to the superintendent of real estate herself, who issued a statement related to this new report.
My question is to the minister. Where in this act is there any kind of provision for teams of auditors? Where are these teams of auditors coming from? How are they being paid for? Clearly, there is going to be have to be some enforcement if this law is to be meaningful to anyone.
Hon. M. de Jong: Of course, the other provisions of the property transfer tax…. The powers of the administrator are contained within the main body of the legislation. You would not generally see enumerated in legislation of this sort the specifics around resourcing for enforcement, although admittedly, that is very important.
The member has referred to a report that was tabled today relating to FICOM. I suspect the member may have some additional questions around that when we come to the part of this bill which relates to the changes that are proposed to the real estate industry and the Real Estate Council.
In the case of the property transfer tax, of course, enforcement and auditing exist within the ministry itself, within the branch. We do foresee, as a result of this measure, taking on additional audit capacity in the initial stages. The member has, I think, in the past, in response to this, made comments about the significance of the step and the temptation that may exist for people to attempt to avoid making payments, avoid abiding by the provisions. We’re alive to that.
There is, obviously, a significant tax being imposed here, so having additional audit resources within the department is something that we believe is appropriate and will be necessary. But you would not, generally, and do not, in this case, include the specifics of that in the legislation creating the legal obligation around the tax.
D. Eby: In the absence of any provision specifically allocating a certain level of resource or the source of the resource for funding the auditors, I don’t have a ton of confidence that this government and their track record on enforcement in real estate is one that we should be trusting with ensuring adequate enforcement here, given that there has been chronic understaffing in the regulator responsible for pensions, for credit unions, for real estate, for insurance. I think we’re going on four years now that the Auditor General and the head of FICOM have been flagging this.
I suppose the best we’ve got is trust. “You can trust the government. They will deal with it.”
This is another issue that has come up. I understand that this additional tax is based on the property transfer tax mechanism. The property transfer tax mechanism is what this new tax is based on.
In light of that, there were some very serious questions asked by myself and others about the assignment of presale condos. That’s where a developer is proposing to build a building and, before it’s constructed, enters into a contract with a prospective buyer, pledging to sell the unit if the buyer puts down a certain amount of money. Now, there has been a brisk trade in presale condo contracts between people who are speculating and buying them up and selling them to other people, like concert tickets or a scalper at a hockey game, hoping that they can get more money for the presale condo contract before the building actually opens.
We’ve had a similar issue with the assignment of contracts of sale. This is where you buy a home and it’s got a long closing period. The Vancouver real estate market has been so crazy that the house prices appreciated over the period of the closing such that the original buyer assigns the contract to somebody else, before the deal closes, and makes a profit. In that way, both in condos and in existing homes, presale condos, you can assign contracts and speculate and be involved in speculation in the property market.
Now, my question about this tax was: does this tax apply to those kinds of activities? Does it apply to speculation in presale condos? Does it apply to the assignment of contracts of sale? I understand the property transfer tax is never applied to either of these activities. My question to the minister is quite straightforward. Does this tax proposal tax the assignment of presale condos? Does it deem that to be a taxable transaction, for the purposes of this tax, or not?
Hon. M. de Jong: I forgot and neglected to introduce Hilary Harley, who has joined us since we began.
Well, the question has kind of answered it. The property transfer tax has been, always has been and remains a tax that is triggered by registration, insofar as a contractual arrangement, preregistration, hasn’t attracted, and will continue not to attract, application of either the original property transfer tax or the additional tax.
Now, I would say, though, that to suggest that there isn’t an impact…. The member has described this in terms involving the scalping of tickets. It is not a clever analogy, I think. There is something of a difference, though, cropping up, insofar as the scalper, if you will, is now confronted by the reality that there is a time clock ticking. I think the member knows this, one of the reasons.
In addition to the fact that we have a property transfer tax built around the principle of registration of the interest…. In the case of condominiums, it is the completion of the building and the finalization and filing of the strata plan and the assignment of a parcel identifier number that actually, at that point, triggers the obligation for payment. If I can use the member’s analogy, the scalper, in this case, has got a time clock ticking that says if that assignment doesn’t occur and if it is a foreign national who has the interest, they’re on the hook. They are on the hook for that additional 15 percent. So the negotiating dynamic there changes.
Insofar as there is the possibility that a foreign national — now confronted by the realization that this 15 percent tax is going to be applied to him or her once the building is completed and that obligation crystallizes — decides that they do not wish to pay that and chooses to assign their rights under that contract to a British Columbian, a permanent resident, a Canadian citizen, then I suppose the argument can be made, in part, mission accomplished, if the purpose was to dissuade foreign nationals from acquiring properties in favour of British Columbians.
I get the member’s analogy, but with respect to both the manner in which the tax has always operated and continues to operate, I think it’s also important that he acknowledge there is that additional element where the completion of the building and the obligation crystallizing to pay the additional tax adds a very interesting dimension to the discussion or the negotiation that might take place.
D. Eby: That was a very involved answer, and I appreciate the nuance. The bottom line is that an international investor could buy a presale condo, sell that contract — that agreement to buy the condo — before the building is completed, profit from that and not pay the tax.
The reason why this is….
D. Eby: I’ll just ask the minister to clarify, because he seems to have a concern about that.
Hon. M. de Jong: It’s a dimension to this that doesn’t often get talked about. In the case of the assignment example that we are dealing with, the suggestion that there isn’t applicable tax isn’t actually correct, because income derived from Canadian real property or the disposal of Canadian real property is taxable, and there is a withholding provision.
To be fair, I think I understand the member’s point about the additional tax. But I also want to make it clear on the record that the suggestion that that kind of transaction occurs tax-free is not correct, and there is a withholding obligation, as well, that ensures — that it is designed to ensure — that Canadians receive the appropriate level of collect on the tax that is payable.
D. Eby: An international speculator would have to pay GST on the cab ride on the way to the realtor’s office, but what we’re talking about is the bill that’s in front of us here today.
The reason why it’s significant is that a realtor sent out a message to his clients saying if you assign this presale condo before the closing date, you can still profit from this transaction and not have to pay the minister and the Premier’s new tax. In response to that email, the Premier recommended that this individual be reported to the Real Estate Council. Then the Real Estate Council issued a statement saying that if realtors talked about this, then they could potentially go to jail, that there was a two-year jail sentence for avoiding the tax or counselling clients to avoid it.
Now, I just want to make it clear on the record for realtors in fear of going to prison for telling their clients what the state of the law is. If an international investor buys a condo that is a presale condo directly from the developer and assigns it before the building is complete, that individual does not pay this tax that’s in front of this House, on the paper here today — does not pay that tax — and not only that, is entirely legally allowed to do that, because the property transfer tax has never applied to this kind of activity, and there’s nothing in this bill that changes that.
Hon. M. de Jong: A couple of things derive from the member’s comment. We’ll get to it, I’m sure, in the conversation.
The anti-avoidance provisions of the bill, which are strong — I have to say and concede that they are very strong — relate to the purpose behind which a particular transaction might occur.
I think the member also knows with reference…. I watched the same transaction in the media that the member is referring to and the response from the Real Estate Council. The missive that the particular realtor sent out also spoke to other recommended courses of action to avoid the tax beyond what the member has referred to.
I rather suspect, though I haven’t spoken to the Real Estate Council, that it was those additional comments and that additional advice being proffered by the realtor in that case that attracted their attention.
D. Eby: I didn’t hear the minister say it. I think it’s important that the minister say it. The chief head of this government said that what the realtor did was wrong, that he should be reported to the Real Estate Council, the regulator, and threatened a two-year jail sentence for realtors who counsel their clients to avoid the tax. So it’s really important to be clear about what the realtor did wrong and what the realtor didn’t do wrong.
On the point of advising clients that if they are international speculators and they buy presale condos and they sell them before the building is complete, then they don’t have to pay this tax that’s on the paper in front of us here today — yes or no? Does this tax apply to that activity, or are we in a new realm where the property transfer tax and this tax do apply to this activity?
Anti-avoidance only applies to a tax that you’re avoiding. There is no tax here in this law, as I read it in this bill, that taxes the buying and selling of presale condos by international speculators.
Hon. M. de Jong: I’ve said this before — maybe not to the member. I will never presume to tell him how to ask a question, and I hope he won’t try to tell me. He may not like my answers, but I hope he won’t try to tell me how to give them.
Hon. M. de Jong: Yes, I’m sure the member would.
I’m relying on a document that was given to me — and I hope it is accurate — relating to the commentary that the member has referred to, where, allegedly, a realtor, in a widely distributed document to clients, said, amongst other things: “It is possible in many cases to assign the presale purchase contract to a family member or a friend who is a Canadian citizen or resident.”
The anti-avoidance provisions make clear that if the sole purpose of that kind of a transaction is to avoid the tax, that’s a problem. That is problematic. So in that case, that would attract the attention — and did, apparently, attract the attention — of the Real Estate Council.
I’m not going to stand here — and never have — to offer definitive legal pronouncements. But the general proposition around the anti-avoidance provisions is that if someone engages in behaviour or a transaction merely to avoid what would otherwise be the applicable tax, then that is problematic. I think the Real Estate Council, I presume, saw that statement as coming perilously close or falling into that category.
D. Eby: Again, I want to clarify this for all the realtors in B.C. that are watching this very carefully. They are worried about complaints being made to the Real Estate Council. They are concerned about threats of jail. If they advise a client, an international speculator, that they do not have to pay this tax as long as they sell the presale condo before it is complete, before it is registered, are they incorrect? Or is that exactly, in fact, what this law is in front of us?
The fact that the minister is not answering the question is what leads to the concern. We need clarity about what the law says. The property transfer tax is never applied to assignment. Never. It doesn’t apply to assignment now. And it’s important that the minister says that so that realtors know what they can and can’t advise their clients.
Hon. M. de Jong: I hope the member will appreciate that I am in no way trying to evade his question, but the circumstances of a particular transaction are relevant to the answer.
In a circumstance where a foreign national is advised, for example, “Well, just assign this contract. Have it registered at the time that obligation crystallizes and then have it transferred back, or have it held in trust and have it transferred back,” that original assignment can be problematic. I’m not endeavouring to evade. I think I have made it clear that the mechanism that triggers the obligation, in general terms, to pay the property transfer tax is registration. That has not changed.
The mechanism that triggers the obligation, in general terms, around the additional tax is registration. But there are circumstances one can contemplate, where someone will try to avoid payment of the additional tax through an assignment process, that are problematic, and realtors and professionals need to be cautious, in my view, about the nature of the advice they give.
D. Eby: I guess we’re getting somewhere. The minister said: “If the assignment is not a true assignment….” You assign it to somebody but then it’s held in trust, or you assign it to somebody with the agreement they’re going to transfer it back later. Okay. But that’s not what the minister read from that email.
What the minister read from that email is, “You can assign it to a friend or family member who is a Canadian citizen without paying the tax,” which is absolutely true. All of the legal obligations to buy the condo pass to that individual. Title passes to that person, who doesn’t have to pay the tax.
Again, if a realtor advises a client…. Here’s a scenario. I’m an international speculator and I set up a business of buying up presale condos and flipping them before completion date. This is my business. I’ve no intention of avoiding the tax. It’s just what I’m doing. That activity is entirely untaxed under this bill. Isn’t that correct?
Hon. M. de Jong: Again, coming back to the example that the member has given and applying it in the context of the legislation before us, where the recommendation was to assign the presale purchase contract to a family member or friend…. In that context, the friend, the Canadian citizen or resident, would be obliged to confirm the circumstances of that assignment, and that would attract the additional tax. Maybe I’m missing something, but in that case, by virtue of their status as a trustee, the tax would apply.
D. Eby: I, as a Canadian citizen, buy a presale condo, lose my job. I’ve got my brother. I assign the contract to my brother to complete the contract. I don’t pay the property transfer tax. The property transfer tax isn’t engaged on the assignment. It’s only engaged when the condo is complete and my brother registers the title.
Why would it be the case in this bill that doesn’t change the property transfer tax, that’s totally based on the property transfer tax…? If a foreign national transfers the property to his or her brother who’s a Canadian citizen and who ultimately registers the title, why, suddenly, would the tax apply in that situation?
Hon. M. de Jong: Because in the amendments, there is a definition of a taxable trustee. Again, in the example that we’re talking about, in that specific circumstance, the additional tax would apply.
D. Eby: So the minister is adding another level where there’s a secret agreement between the foreign national and the family member. Your name is on the title, but it’s not actually your property. You’re acting as trustee for me. That’s what the minister is doing. He’s adding this extra level on. The email continues to go on about selling it to a third party for a profit, which is an entirely tax-free activity, as well, under the property transfer tax.
I think it’s important, for all of the reasons that I said, to be really clear for the real estate community that is grappling with this. It came out of nowhere, right? They’re getting warned that if they give the wrong advice, they could go to jail or be fined more than $100,000.
I think it’s really important to be clear that in the absence of any other agreements or trust arrangements or anything else like that, if they advise a client that you can transfer, you can assign, a presale condo to a friend or family member or a third party tax-free, that advice is in fact correct advice under the legislation that’s been placed here. In the absence of any side deals or side arrangements or whatever, if it’s a true assignment, that happens tax-free, foreign national or not.
Hon. M. de Jong: I’m trying to dissect the member’s question. I think where I get hung up, admittedly, given the importance of the venue we have this conversation in, is speculating as to the nature of a particular transaction or assignment. We’ve zeroed in on one aspect of advice that someone purported to give.
By the way, I will say this. I think realtors should be very careful about giving tax advice. There is a group of professionals who are qualified to do so. I’m not sure realtors are. And by the way, in saying that, I understand that there is a short time frame associated with the implementation of this legislation. I’m cognizant of that as well. I don’t want to pretend otherwise.
The purpose for which an assignment takes place is relevant. In many ways, the risk accrues to the person receiving the assignment, if and when there is an audit to explore further what was taking place around that assignment.
I’ll go to the beginning of what the member has said, though, because it would be a shame to be rushing to agreement on this where I think there is perhaps agreement. The mechanism of the property transfer tax — the original tax, if we can call it that, around which this additional tax is attached to — is the principle of registration. I think he has made that point. I’ve tried to make that point.
I am obliged to point out some of the provisions around taxable trusteeship and the anti-avoidance mechanisms that apply, particularly with respect to the additional tax. But insofar as the member has emphasized — I think a number of times now — that the property transfer tax is generally triggered by registration, he is correct. I’m not arguing with him.
The Chair: Member on section 3.
D. Eby: I like this idea that there’s a team of auditors that are going to come around and ask people questions about their motivations behind the assignment. “Now, I just want to ask you, sir, when you transferred this property, what was your feeling about why you were doing that? Were you doing that to avoid the tax, or were you doing that to help out a family member?”
It’s such a joke, because we have the Wild West in our real estate market. We have FINTRAC saying we’re at risk of money laundering, particularly in Metro Vancouver. We’ve got a businessman from China who bought $8 million in properties, without any scrutiny from anybody, with stolen money from a Chinese bank. The only reason we found out is because they tracked him down here and sued him in the jurisdiction.
We’ve got a report from the Auditor General that says the financial regulator has been understaffed for 3½ years. Yet the public is supposed to believe that officials from the Ministry of Finance are going to come and interview people who assigned a presale condo to ask exactly what they were thinking when they assigned that condo. It’s such a bizarre suggestion.
The reality is that assignments of presale condos and assignment of homes will be tax-free in British Columbia because it’s not contained in the act. The minister keeps coming so close to saying that. I don’t know why he won’t say it, because the Ministry of Finance, I would assume, is obliged to provide basic information to the public about how to comply with the taxes that they introduced. That basic information would include the situation, if you assign a presale condo, whether or not you’re obliged to pay the tax.
Royal Assent to Bills
Hon. J. Guichon (Lieutenant-Governor): Pray be seated.
Human Rights Code Amendment Act, 2016
Miscellaneous Statutes (Housing Priority Initiatives) Amendment Act, 2016
In Her Majesty’s name, Her Honour the Lieutenant-Governor doth assent to these acts.
Hon. J. Guichon (Lieutenant-Governor): Thank you for meeting in the middle of summer and coming back to pass this important legislation. Thank you for your service once again.
Her Honour the Lieutenant-Governor retired from the chamber.
[Madame Speaker in the chair.]
Hon. M. de Jong: I move that the House, at its rising, do stand adjourned until it appears to the satisfaction of the Speaker, after consultation with the government, that the public interest requires that the House shall meet or until the Speaker may be advised by the government that it is desired to prorogue the fifth session of the 40th parliament of the province of British Columbia. The Speaker may give notice that she is so satisfied or has been so advised, and thereupon the House shall meet at the time stated in such notice and, as the case may be, may transact its business as if it had been duly adjourned to that time and date. And in the event of the Speaker being unable to act, owing to illness or other cause, the Deputy Speaker shall act in her stead for the purpose of this order.
Madame Speaker: This House, at its rising, stands adjourned until further notice. Safe travels to your families and to your constituencies. See you in the fall.
Hon. M. de Jong: I think protocol requires I move the House now be adjourned.
Hon. M. de Jong moved adjournment of the House.
Madame Speaker: Until we meet again.
The House adjourned at 5:39 p.m.
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