Re: Proposed Land Owner Transparency Act

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Horace Hutchinson
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URBAN DEVELOPMENT INSTITUTE PACIFIC REGION #200 602 West Hastings Street Vancuver, British Clumbia V6B 1P2 Canada T. 604.669.9585 F. 604.689.8691 www.udi.bc.

1 URBAN DEVELOPMENT INSTITUTE PACIFIC REGION # West Hastings Street Vancuver, British Clumbia V6B 1P2 Canada T F September 19, 2018 The Hnurable Carle James Minister f Finance and Deputy Premier PO Bx 9418 Stn Prv Gvt Victria, BC V8W 9V1 Re: Prpsed Land Owner Transparency Act Dear Minister James, On behalf f the ver 850 members f the Urban Develpment Institute (UDI), we respectfully submit ur cmments regarding the prpsed Land Owner Transparency Act (LOTA) White Paper. UDI recgnizes there is a need t build public cnfidence in the real estate industry t ensure that everyne pays their fair share f taxes and that any ptentially fraudulent activity is eliminated. We have endrsed the Prvince s effrts t establish a multi-agency task frce t address tax fraud and mney laundering in the BC real estate marketplace, and want t wrk with all levels f Gvernment in these effrts. UDI has als supprted the Ministry n the develpment f the Presale Assignment Registry. Even thugh the prpsed measures will add substantial administrative csts, fees and delays t real estate transactins and develpment prjects, UDI is supprtive f LOTA in principle. Hwever, UDI is significantly cncerned at the prspect f unfettered public access t a beneficial wnership registry (Registry) that includes persnal infrmatin f parties wh are nt beneficial wners (as that term is legally recgnized) f real prperty, r wh have n ability t cntrl r even influence decisins that culd result in their identificatin in a public registry. We take n issue with the Registry infrmatin being available t the federal and prvincial gvernments and their respective relevant authrities and agencies, including law enfrcement, but we see n justifiable reasn t make all infrmatin cllected under LOTA available t the public at large. We als nte that there are ften bna fide cmmercial purpses fr purchasers whether public bdies r private entities nt t have cmmercially sensitive infrmatin t be publicly knwn fr bth prprietary reasns unique t a particular transactin and fr reasns t curb speculatin. If reducing land speculatin is a gal f the Prvince then making this infrmatin immediately and widely knwn will be cunter-prductive. At the very least, there shuld be an allwance fr delayed reprting t prtect cmmercially sensitive transactins. 1

2 We were pleased that the Ministry publicly released the draft legislatin fr cmment. UDI wuld encurage this practice fr ther legislatin and regulatins in the future. As a general principle, the mre ntice ur industry has, then the mre we are able t cmply with them. Further, interpretive guidance issued by the Ministry will be a valuable resurce. One f the nging prblems fr accurate reprting f additinal prperty transfer (freign buyers) tax is the lack f guidance frm the Ministry t repeated questins frm industry t clarify hw the tax is being assessed and what infrmatin is t be prvided. Fr LOTA t perate efficiently, thse wh are subject t its requirements shuld have the benefit f timely and accurate infrmatin as t its requirements. We ffer the fllwing initial cmments n LOTA: Part 1: Definitins, Interpretatin and Applicatin The definitin f relevant trust includes a reference t express trust. Hwever, express trust is nt defined in the statute. We ask that it be defined, and that clear examples be prvided in guidance materials as t what cmprises an express trust. LOTA needs t be very clear in hw bare trusts are t be addressed. Are they included under relevant trusts? Bare trusts are a ppular tl used under the federal Incme Tax Act fr many years and the Prvince has in the past avided prviding definitinal guidance arund them. With the intrductin t LOTA, it is ur view that the Prvince can n lnger avid prviding legislative language arund bare trusts, and that legislative language will als require further Ministry guidance materials t prvide greater clarity fr filings t be made under LOTA. As ne example, it is imprtant fr the Ministry t prvide a definitin f settlr under LOTA. Despite numerus requests fr clarity n this pint since the intrductin f the additinal prperty transfer tax, the Ministry has nt prvided any clarity n this pint. It shuld als be nted that the definitin f settlr in the Prperty Transfer Tax Act is different frm what is cmmnly thught t be a settlr in law, and is nt cnsistent with the definitin used in LOTA. We understand frm the language regarding the 25% rule described in Sectin 3 that n reprting under LOTA will be required if there are mre than fur individuals with equal shares f the wnership f a prperty. Hwever, if this is nt the expectatin f the Ministry, then the definitin f beneficial wner under Sectin 2 needs t be clarified. There is a discnnect with the definitin f crpratin between the Land Title Act and the Business Crpratins Act. Des the gvernment anticipate the difference in definitins as an issue fr LOTA and specifically with regard t the definitin r crprate interest hlder (Sectin 3)? There are ther clarificatins needed under Sectin 3 regarding crprate interest hlder : The inclusin f a "value f equity" test is t vague and effectively impses a daily bligatin t assess the wnership f a prperty where n actual transfer has ccurred since there can be different classes f 2

3 shares with different valuatins. The vting rights test in sectin 3(1)(a)(ii) shuld be adequate fr the gvernment's purpse. Under Sectin 3(1)(c), a definitin f what significant influence r cntrl ver the relevant crpratin, is needed. cmmn Interests is nt defined under Sectin 3 (2) (b). Under Sectin 4 ( Partnership Interest Hlder ), UDI asks the Gvernment t cnsider applying the 25% rule nted abve t partnerships especially limited partnerships and limited liability partnerships (which typically cmprise prfessinal service partnerships with ffice leases). As with crpratins, the increased administrative csts wuld nt be warranted in situatins in which there are numerus individuals invlved, each with little effective wnership/cntrl f a prperty. It wuld als prvide a cnsistent apprach in LOTA between partnerships and crpratins. T ensure cnsistency f language thrughut LOTA, we recmmend that Sectin 7(a) be amended frm prvide the crpratin s r cmpany s t prvide the relevant crpratin s r cmpany s. Als, under Sectin 7(a)(iii), UDI recmmends that if applicable be added after head ffice address Lastly, the inclusin f leases under the definitin f interest in land is an unnecessary extensin f the applicatin f LOTA that is unlikely t amunt t anything mre than a significant burden fr the Prvince t manage. We nte that the Prperty Transfer Tax Act nly triggers transfer tax fr leases as equivalents t wnership fr leases (including renewal terms) f mre than 30 years. The definitin f "interest in land" in LOTA, as drafted, wuld likely capture thusands f additinal leases t n material benefit. Further, given the Prvince's recent changes t the Residential Tenancy Act, the definitin may nw capture residential tenancy agreements where terms cnvert t peridic tenancies. Part 2: Transparency Declaratins and Disclsure Reprts Under Sectin 15, Reprting bdies will als be bligated t file an updated disclsure reprt within tw mnths f becming aware f a change in beneficial wnership. UDI recmmends that a different apprach be taken in which reprting bdies prvide disclsure reprts with updates in beneficial wnership every six mnths. This wuld reduce the administrative burden f LOTA, which will likely be quite high fr reprting bdies with significant land hldings. Part 3: Access t Infrmatin Prvided in Disclsure Reprts As nted abve, UDI supprts the establishment f a Registry in which key infrmatin regarding wh beneficially wns real prperty is shared with tax auditrs and law enfrcement. This shuld assist the effrts f agencies t cmbat mney laundering and tax evasin. Hwever, UDI is cncerned that access t the Registry infrmatin wuld be available beynd the federal and prvincial gvernments and their respective authrities and agencies, including law enfrcement. If cmmercially sensitive infrmatin is shared beynd gvernment and the necessary authrities, 3

4 this culd undermine bth the private and public sectrs abilities t acquire land withut triggering speculatin. As the Prvince has dne with the additinal prperty transfer tax, and the Prvince's prpsed pre-sale assignment reprting, the infrmatin can be cllected, assessed and disseminated n an aggregated basis, but public access t individual filings is nt cntemplated. In terms f ur industry, there will be impacts n cmpetitin as the prprietary infrmatin f ur members (e.g. when they assemble sites fr future prjects) will be released t their cmpetitrs and land speculatrs. It is ur understanding that ne f the verarching gals f the Gvernment is t increase reduce real estate speculatin. LOTA will nly increase speculatin if the Registry is accessible t the public at large. When the Prvince, TransLink, BC Hydr, BC Husing, lcal gvernments and ur members assemble sites fr prjects, the Registry will effectively act as an invitatin fr thers t purchase abutting sites and flip them at a higher price, which will drive up land csts that will be passed nt tenants and purchasers. New imprtant public sectr prjects like husing, highways, transit and cmmercial/industrial develpments will becme mre expensive t assemble and build. We nte that in 2007 the Prvince f B.C. purchased 15 single rm ccupancy (SRO) buildings, and reprtedly was able t reduce the land csts by shielding the Prvince's purchase activities thrugh the use f numbered cmpanies t cmplete the purchases. At the time, this apprach was bradly supprted by all stakehlders. One ptin fr the Ministry culd be fr LOTA t allw the public access t infrmatin n the beneficial wner (as this term has traditinally been defined) f a site. Hwever, infrmatin beynd wh wns a beneficial wner entity culd be limited t law enfrcement and gvernment tax auditrs. It is nt clear what public plicy benefits wuld arise frm making this infrmatin als available t the public. If there are any, they wuld be utweighed by the negative impacts f increased speculatin and land prices. Further, the Business Crpratins Act and Partnership Act d prvide public access t certain crprate and partnership infrmatin. LOTA shuld nt becme a shrtcut fr the public t circumvent the restrictins t infrmatin established under thse statutes. If the Gvernment des prceed with public access t the Registry, we als ask that persnal infrmatin such as the principal residence f individuals (Sectin 8(d)) nt be released fr privacy and security reasns. Again, it is nt clear why such infrmatin wuld have t be publicly accessible if the relevant tax and law enfrcement agencies have access t the infrmatin. We ask that Sectin 28(2) be amended t duble the time perid between when the Registrar accepts disclsure reprts and when persnal infrmatin is publicly psted n the Registry frm 30 t 60 days. This will ensure that there is enugh time fr: a) peple t be ntified by a reprting bdy that persnal infrmatin abut them will appear n the Registry; and b) thse wh have cncerns abut their infrmatin being made public t apply t the administratr t mit r bscure the infrmatin frm the Registry under sectins 38 and 39. 4

5 Schedules 1 and 2 (Exemptins) LOTA includes several exemptins fr crpratins and trusts in Schedules 1 and 2. We ask that there be similar exclusins under paragraph (a) f the definitin f relevant crpratin (Schedule 1) fr partnerships if the partnership (usually a limited partnership r a limited liability partnership) is a reprting issuer as cntemplated by the Securities Act, as they are the equivalent f public cmpanies. Alternatively, a Schedule fr partnership exclusins shuld be added. Such a schedule shuld als include prfessinal services partnerships. Scieties and nnprfit crpratins shuld als be cnsidered fr exemptins in Schedule 1. We als recmmend fr Schedule 2 that hybrid charitable trusts and spusal trusts be added as exclusins under paragraph (d) f the definitin f relevant trust. It is nt clear whether charitable trust under Schedule 2 wuld include hybrid charitable trusts and s, fr sake f clarity, we ask that it be specifically added. If jint spusal trusts are included in the exemptin list then spusal trusts shuld similarly be included in the exemptin list. Thank yu again fr publicly releasing the LOTA White Paper. We hpe this is a practice that will be adpted mre frequently by the Gvernment in the future. Althugh UDI is supprtive f LOTA, we ask that yu cnsider the recmmendatins we have made t imprve the legislatin especially with regard t limiting public access t the Registry. If yu r Ministry staff have any questins regarding ur respnse, please d nt hesitate t cntact us. We wuld be pleased t discuss them further. We wuld als be interested in discussing future regulatins under LOTA and Ministry Bulletins. Yurs sincerely, Anne McMullin President & CEO 5

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