Billionaire’s association with luxury BC mansion highlights property tax loophole
A billionaire’s association with a luxury Vancouver Island mansion sheds light on land title anomalies that mean property transfer taxes and foreign buyers don’t apply to purchases of some homes expensive in British Columbia.
CBC revealed last month that Russian-born billionaire Yuri Milner was the man behind the trust that bought the $18million Mille Fleurs mansion in 2013 – seven years before the beachfront property was home to the prince Harry and Meghan Markle as they reportedly draw up plans to step back from their royal duties.
But beyond the intrigue associated with ownership of the mansion, the survey also points to an unusual property registration situation that predates title deed legislation passed in the 1960s.
In a nutshell, Mille Fleurs is one of several properties located on a larger piece of land owned by a company known as Towner Bay Country Club Ltd., which was incorporated in 1929. The larger piece of land is not subdivided and the owners of the residences therein are all shareholders of the corporation.
When a house is sold, the individual shares change hands, but the sale of a lot does not affect ownership of the larger plot, which means there is no transaction to register with the land titles office – and therefore no payment of conveyancing or taxes from foreign buyers.
“The Wacky World of Taxation”
There is no suggestion that anyone has done anything wrong – it’s just the way land title is grandfathered to some properties.
A similar situation involving 1960s apartment buildings in Vancouver’s West End saw real estate agents trumpeting in all caps that there is “NO FOREIGN BUYERS TAX and PURCHASING TAX PROPERTY” in multi-million dollar English Bay front apartment listings.
“These things live in their own wacky world of taxation,” says Ron Usher, general counsel for the Society of Notaries Public of BC
Usher has cataloged with interest what he calls “historical anomalies” like Towner Bay and the West End apartment complexes which – to add another layer of confusion – are known as co-ops, but are not the same type of rental co-ops that exist in British Columbia as affordable housing.
He says they are probably best described as “housing corporations” created before the Strata Title Act of 1966 as a way for people to have shared ownership of the building in which their apartments were located.
Similar ownership structures exist in older three- and four-story buildings scattered across the Lower Mainland – often surprising buyers when they find there is no title to their individual units.
“I think the big point to make – they solved a huge housing problem for a lot of people before we had strata,” Usher said.
“These are ways people bought affordable housing. They were problem-solving programs as opposed to tax avoidance programs.”
“Do not search the world for strange anomalies”
Usher and Professor Tsur Somerville of the Real Estate Foundation of British Columbia say that owning shares in a corporation – as opposed to registering your individual property with the Land Title Office – has its downsides.
By buying shares, the buyer buys the right to occupy a house on land owned by a large corporation that sets the rules for occupancy. It is difficult to obtain a mortgage or any other type of financing.
You cannot take advantage of home ownership programs. And then there is capital gains tax if the property is not your principal residence.
Somerville says it’s a stretch to imagine tax-averse plutocrats exploiting loopholes in BC’s strata law to find ways to save money.
“Billionaires run stuff through layers of shell companies with Panamanian lawyers and shell companies registered in the Cayman Islands,” he said.
“They don’t search the world for weird anomalies in ownership structure and buy them.”
According to the province’s real estate transfer tax calculator, the property tax payable on an $18 million mansion would be $818,000.
Somerville says that, taken as a whole, the money lost to provincial coffers from pre-condominium landholding situations pales in comparison to the size of BC’s real estate market.
But that doesn’t mean that tax avoidance isn’t a problem — or that corporate real estate ownership isn’t used to evade both taxes and scrutiny.
“We are afraid to put in place rules”
As former leader of BC’s Green Party, Andrew Weaver began speaking out about the need to close the province’s property tax loopholes in 2014. The issue still annoys him, two years after leaving politics.
During his tenure, Weaver set his sights on bare trusts — a way to separate the name on title to real estate from the people who actually benefit from its ownership.
A fiduciary – often a corporation – holds legal ownership of the asset, but all decisions related to its use rest with the so-called beneficial owner.
On a sale, the new owner would pay all costs of ownership plus an additional $1 for the shares of the bare trustee company, the name of which remains on title, meaning there is no need pay property transfer taxes.
Weaver says British Columbia should follow Ontario’s lead in tying the property transfer tax to a change in beneficial ownership, not just title.
“Simple change,” he said.
“It seems like we’re worried about putting rules in place. And that’s the biggest problem is that there’s almost a risk aversion, it seems, for governments putting in place rules.”
“Committed to improving tax models”
In response to questions from CBC about land ownership structures that lead to land transfer tax loopholes, B.C.’s Ministry of Finance said the province is “committed to improving tax models to address challenges like this one “.
“One of the first steps in dealing with a situation like this is to ensure that we have information on the beneficial owners, including information on what they own and the ownership structures they have. have,” the ministry said in a statement.
The government points to the new Landowner Transparency Register, a publicly searchable database of anyone with an indirect interest in land. The deadline to file with the first-of-its-kind database in Canada is November 2022.
The ministry says it will use the information “to understand what beneficial ownership looks like in British Columbia, which will support the continued improvement of British Columbia’s tax models.”
With respect to the 27 parcels belonging to the Towner Bay Country Club, an unforeseen pitfall arose in 2014, when the District of North Saanich questioned whether its bylaws would allow more than one “guest cottage” for the whole property – which was, after all, not subdivided.
The solution? Amend the by-law to consider these parcels as land registered with the land titles office.