A couple attempting to skirt the rules on the foreign buyers’ tax are now being made to pay up — in the form of a $70,000 bill.
A B.C. Court of Appeal ruling on Jan. 14 in the couple’s case makes it clear: if a person holds an ownership stake in a property on behalf of a foreign entity — regardless of the size of the stake — the entire value of the property could be subject to the tax.
The law was introduced by former premier Christy Clark as a 15 per cent tax applied to property being bought by foreigners as a way to cool off an overheated housing market. It initially only applied to Metro Vancouver, but in 2018, under the NDP, it was expanded to several other regions and increased to 20 percent.
Chia-Wen Hsia, a Canadian citizen, and her fiancé Li-Yuan Chuang, a foreign national, bought their home in Richmond in 2017, the year after the tax was introduced.
The couple had an agreement in place to buy the home since 2014, but were not married until Dec. 2017 — more than six months after the sale.
Chuang put up 40 per cent of the $474,500 for the house, while Hsia’s mother put up the rest.
When it came time to pay the tax bill, the couple listed Chuang’s ownership stake as five per cent, not the 40 per cent he contributed.
The next year, when the finance ministry issued an audit, an investigator also found a lack of evidence that the couple lived at the property — or even that they lived together — and, failing to get a response, issued a tax bill of $126,156.75 based on the property’s 2017 assessed value of $777,000.
The ministry eventually backed down and only charged them tax on the $474,500 sale price, but on 100 per cent of the cost, not just Chuang’s portion. This determination has now been upheld by a trial judge and confirmed by a three-judge appeals panel.
Both court judgments explain that to apply the tax to a property’s full sale price, the government only needs to determine that at least some portion is being bought to be held in trust for a foreign owner. Otherwise, it would open the door to “uncertainty, inefficiency and the potential for inconsistency.”
“Once a person is found to be a taxable trustee, there is no requirement to determine what portion is held in trust for the foreign entity,” appeals court justice Margot Fleming wrote.
This stops evasion, as the judge points out that trusts are a common method of tax avoidance.
“The taxable trustee provisions recognize that to achieve the aim of the [foreign buyers’ tax], the scheme needs to prevent tax avoidance by foreign investors who own beneficial interests held indirectly by others,” Fleming wrote.
With the appeal dismissed, the couple’s tax bill goes from $3,558 to $71,175. And if the couple had listed Chuang’s share as 40 per cent in the first place — meaning that Hsia is no longer technically a “taxable trustee” — they may have escaped with a bill half the size.
“I appreciate the appellant’s view imposing [the tax] on Ms. Hsia’s 95 per cent interest, as well as Mr. Chuang’s 5 per cent interest, as profoundly unfair,” Fleming wrote. “However, had they registered their interests on title in accordance with their respective contributions, [the tax] would only have been payable on 40 per cent instead of 100 per cent of the market value of the property.”