Critics say a growing number of businesses or wealthy individuals are exploiting a loophole to avoid paying B.C.’s tax on property transactions while average home buyers are stuck footing the bill.
The Property Transfer Tax consists of one per cent charged on the first $200,000 in property value and two per cent after that – adding up to an extra $10,000 in tax when a $600,000 Metro Vancouver home changes hands.
But businesses in particular are making growing use of what’s called a “bare trust” corporation to hold ownership of a property.
The trust can be transferred to a new buyer without any change in the land title owner and no PTT is triggered as a result.
“The loophole is big enough to drive trucks through,” Canadian Taxpayers Federation (CTF) B.C. director Jordan Bateman said. “Accountants are all over it, especially corporate ones. It’s becoming standard tax practice and that tells you people are taking advantage of it.”
On a big commercial or industrial property sale, the savings can be significant and Bateman guesses the provincial government may be losing out on $15 to $25 million a year it should be collecting.
“If you captured some of that would you be able to trim down the overall Property Transfer Tax rate to make it easier for everyone?” he asked.
Exactly how much is being lost to the loophole is hard to determine.
Data obtained by the CTF through Freedom of Information show business and industry made up a declining share of the taxable transactions and PTT collected from 2006-11.
By 2011, residential properties made up 80 per cent of the $927 million in PTT collected – up from less than 70 per cent in 2006.
Just 291 industrial property transactions were taxable in 2011 (down from 1,041 in 2006) and resulted in PTT payments of $9.7 million, or one per cent of the total.
Business property sales totalled 2,334 (down from 4,276 five years earlier) and contributed $67.1 million, or 7.2 per cent.
Residential transactions also dropped after the 2008 recession and Bateman said they should outnumber the other categories.
But he said the residential share still looks “awfully high” to him.
It’s not impossible for residential property owners to use bare trusts, but Bateman thinks it’s rare.
Finance Minister Mike de Jong said in a statement the province is aware bare trusts can be used to dodge the PTT.
“While it has not yet been determined that a remedy is required, it may be challenging to design a remedy that doesn’t have other, unintended consequences,” de Jong said.
NDP finance critic Bruce Ralston said he’s aware of the manoeuvre but isn’t sure how prevalent it is.
He said the NDP has no plans to attempt to plug the loophole.
“I’m not sure how effective it would be,” Ralston said. “Sometimes when you put in anti-avoidance measures, people try other anti-avoidance measures.”
Bateman said the bare trust loophole underscores his position that simpler tax systems are generally better.