CRA plans ‘lifestyle audits’ in Vancouver as part of real estate probe
An investigation by Canada Revenue Agency into Metro Vancouver’s soaring real estate market is expected to bring under scrutiny people whose lavish lifestyles and expensive homes don’t appear to be in line with their incomes.
The CRA’s plan, described in a briefing document leaked to The Globe and Mail, indicates that one key area of investigation will be “lifestyle audits.”
Christine Duhaime, a Vancouver lawyer who specializes in financial crime and anti-money laundering law, said that means the CRA is going to take a close look at individuals who seem to be living far beyond their means.
“So it’s how come you are rich and famous in Vancouver – but you have no job? How is that possible? So that’s what money-laundering people look for – this out-of-whack spending pattern,” she said in an interview on Friday.
Ms. Duhaime said money launderers often follow similar patterns when it comes to spending big: They all want the same excessive symbols of wealth.
“They all follow what we call the same typology. … They all want an expensive Lamborghini or a Ferrari, they want a really expensive house, they send their kids to the most expensive private schools they can get in Vancouver,” she said. “So when you try to find money launderers, that’s what you look for. Who went to the Ferrari shop? And that’s what they mean by the ‘lifestyle audit.’”
Ms. Duhaime said while many people think of money laundering as something done by drug dealers, in fact the activity is more often associated with white-collar crime and usually involves tax evasion.
She welcomed the investigation by the CRA, which has assigned 70 auditors to examine real estate transactions in Metro Vancouver.
The probe comes in the wake of an investigative series by The Globe that examined Vancouver’s hot housing market and the role of foreign speculators in driving up prices. The series has reported cases in which foreign-born owners declared low incomes despite moving millions of dollars through relatives into Canada, and revealed concerns that poor reporting by real estate agents has made the industry vulnerable to money laundering.
The CRA plan, disclosed by The Globe on Thursday, includes a reference to collaboration with FinTRAC, the Financial Transactions and Reports Analysis Centre of Canada, an independent federal agency that monitors money laundering and people who finance terrorist groups.
“To me this is a great step,” Ms. Duhaime said. “Tying it in with FinTRAC means they are taking it a bit more seriously in looking at money laundering and tax evasion.”
Darren Gibb, a spokesman for FinTRAC, said his agency is supporting the investigation, but the lifestyle audits will be done by the CRA. He noted that FinTRAC can respond to CRA requests for information about individuals if disclosure standards are met.
“When we provide a disclosure based on money laundering and terrorism financing, there is also reasonable grounds to suspect tax evasion. In which case we would provide the disclosure to the RCMP or Vancouver Police Department – and we would provide [it] as a pro-active disclosure to the CRA,” he said.
Kim Marsh, a financial crimes specialist and former RCMP investigator, said the CRA investigation is a step in the right direction but may not be enough given the scope of the problem in Vancouver, where housing speculation has created an affordability crisis.
“Let’s face it and not be too politically correct: It’s Chinese money that’s driving it,” he said. “So you have to understand the situation to start with, and then attack it in many different ways. There is no easy solution.”
Mr. Marsh said he agrees with David Eby, the housing critic for British Columbia’s New Democratic Party, who has said a task force including police, special prosecutors and tax experts is needed to properly investigate the problem.
Alex Klyguine, a tax lawyer in Toronto with Borden Ladner Gervais LLP, said anyone who has a high-end lifestyle and is reporting low income should be ready to explain themselves to the CRA.
“The CRA does come after individuals when it sees they live in very expensive housing and their incomes don’t support their lifestyle,” he said. “But a lot of the time when an individual has money that they’ve legitimately earned elsewhere, they can provide a simple explanation.”
In an e-mail, Cédrick Beauregard, a spokesman for National Revenue Minister Diane Lebouthillier, said that “the minister and the government of Canada understand that a vast majority of middle-class Canadians pay their fair share and we remain committed to insuring that without exception, every taxpayer abides by the same tax laws.”