Jan D Weir
Canada’s Struggle for a Sustainable Market


Notes of presentation to Lahore University Management Studies Alumni Association

Introduction

A major factor in rising racism, ant-immigration — wealth inequality

Why important — salaried classes’ best way to accumulate wealth and pass on

Since 1900s — until late 1970s — income and wealth equality

In 1970s, slow increase in economic inequality. Economists present trajectory: a return to 1900, as in developing world level of discrepancy

Housing bubble collapse with high debt ratios — serious recession — perhaps depression

Aspect only high-end firm lawyers and accountants know

Politicians likely unaware — would be pleased to learn that I am wrong

Francis Bacon — founder of the common law — Knowledge is power. They have it, we don’t.

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Medium https://medium.com/@JanWeirLaw

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Housing prices in Toronto would have to fall by 2/3rds (75%) to become affordable for most Canadians between 25 and 34 years of age.

According to Jennifer Keesmaat, former Toronto city planner, the average family in the GTA makes $82,000.00[1].

This is a form of taking without giving, seen by its proponents as a basic right under unrestrained and unregulated capitalism.

A prime example of rent seeking is the issuance of Taxi Licenses in most major cities, including Toronto. The license artificially restricts how many people can own and operate taxis, and does not meaningfully create any value for the person who has to purchase one. It doesn’t supply them with training, insurance, pension, or other forms of job security and compensation, but ensures that the person selling the license makes a profit. In one case, a $700,000 USD taxi license in New York resulted in the suicide of Yu Mein Chow, who had taken a loan out to afford the fee and then grew afflicted with depression due to the exorbitant repayment cost and mounting medical and personal bills[2].

Rent seeking occurs in real estate through wealthy landlords buying up housing and artificially raising their value to create scarcity without meaningfully adding to their value beyond cosmetic upgrades.

● Foreign dark money

House and/or condo flipping

● Real estate developers buying land around cities

All three depend on land speculation. Speculation extracts value but adds nothing to the housing itself or the society which requires them.

Snow Washing refers to the practice of foreign entities using Canada as a tax haven for money laundering. Some excerpts regarding this, from the Canada Papers[3]:

“Canada is a horrible tax haven. Everybody is now switched over from using BVI companies and Cayman companies to Canadian LPs. It’s like the ultimate tax haven entity in the world,” — Mark Morris, independent tax consultant based in Zurich who specializes in international tax agreements.

“You cannot but help look at the issue of money laundering. Having a degree of anonymity allows individuals to obfuscate,” — Peter Dent, forensic accountant and past chair of Transparency International Canada, “Rules that allow you to obfuscate the true source of money behind transactions facilitate money laundering on a global scale.”

Ontario has seen 1.4 million residential property transactions dating back to 2008. Privately-owned corporations have spent $28.4 billion on luxury residential homes (those worth between $7–10 million).

Transparency International, a watchdog group that monitors money laundering across the world, reported that between 2008 to 2018, $25.4 billion in residential mortgages in the GTA came from unregistered lenders (shadow banks)[4].

• Techniques perfected by drug lords beginning in the 1980s

serious problem — visualize their dire straits — 20 million a year profit in $20 bills

•$1,000,020 bills = a warehouse several transport trucks. All shrink-wrapped on skids

• get into the system — hide the source. Investments in safe countries

Statistic collectors really don’t know the extent of foreign ownership because of secret ownership corporations and the refusal of governments to enact effective laws to reveal beneficial ownership.

Calls for more data on foreign investors had been rejected by the BC Liberal government under Christy Clark[5]. The BC Liberals are known as a centre-right government, in contrast to the Federal Liberals which are centre-left.

More recently, the Ontario Progressive Conservatives under Doug Ford have stopped reporting data on foreign housing ownership and made it virtually impossible to track how the market is being affected by these speculators[6].

Another contributor to the issue is the use of “nominee directors”, paid signees to various companies used to keep the real owners off the paperwork[7]. These signatures for sale have allowed black money to operate in Canada quite extensively, especially from foreign buyers.

Tax evasion and illicit drug money is being parked in the safety of Canadian real estate; a parachute for those worried about leaving all their wealth in potentially unstable home countries.

● All private corporations are secret ownership corporations

● Incorporation papers only have to show a director who is a resident of Canada

● Trustees can have all of the powers of ownership and are called legal owners. Actual owners are called Beneficial Owners in law

A Simple Tax Evasion Scheme for John Smith

  • Cayman Islands– Bank account, name Sarah Jones [secrecy jurisdiction]
  • Seychelles island— Secret Trust Sarah for Corporation [Seychelle’s lawyer’s office only]
  • BVIs— Corporation Director William White, director and shareholder [Secret ownership corporation in secrecy jurisdiction]
  • Nevada— Signs Secret Power of Attorney for John Smith
  • Ultimate owner, John Smith ‘s identity kept in Nevada lawyer’s office file only

This pattern can be repeated three or more times. The resulting diagram would look like the complicated rating of the three masted schooner.

For more on how they do it: Venice Film Festival Premier, “The Laundromat”

Reveals Tax Havens[8].

BTW: Surprised to see Nevada? That’s because your not a billionaire. Nevada is being called the New Switzerland.

New rules mandate the establishment and maintenance of a new but private register of individuals with “significant control” over the corporation

Canadian Business Corporation

21.1 (1) The corporation shall prepare and maintain, at its registered office or at any other place in Canada designated by the directors, a register of individuals with significant control over the corporation that contains

1. (a) the names, dates of birth, and the latest known address of each individual with significant control;

(Definition Section) Significant number of shares

2.1 (3) For the purposes of this section, a significant number of shares of a corporation is

1. (a) any number of shares that carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares; or

2. (b) any number of shares that is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value.

The justification for the 25% exemption is to save administration costs. There are few private corporations that this would apply to. Having a clerical person type in a few names and addresses is not a significant cost.

Determining 25% ownership, especially if there is a string of shell corporations, is a significant cost. Here’s what the CPA Society said about it:

“Other than the simplest cases, such as where one individual owns a single corporation, these recordkeeping requirements could be quite complicated. In particular, the broad definition of ‘significant control’ means you need to trace through a tiered corporate structure to identify which individuals ultimately hold interests and rights in shares. You then need to determine whether the holdings are significant. You also need to review the impact of a shareholders’ agreement or other similar agreements.”[9]

● Purpose of private register to keep things hidden from journalists and watchdogs (re: Panama Papers)

The NDP prose a public registry

https://www.thestar.com/politics/federal/2019/10/08/singh-promises-to-ease-bc-housing-costs-by-fighting-money-laundering.html

But with a 25% loophole that is no better.

The UK has a public registry that has serious flaws. An ICIJ analysis found 208,572 companies listed post box addresses with no connection to the company’s owner, 140,409 companies with owners or others who provided addresses in tax havens, and 416 companies that changed names more than five times, possibly to obscure corporate activity.

https://www.icij.org/blog/2018/08/loopholes-in-uk-company-register-show-crime-can-still-flourish-study-finds/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+GlobalMuckraker+%28The+Global+Muckraker%29

Developers and their industry often use the following ideas to perpetuate misinformation in the public:

● The notion that housing prices cannot be lowered and that we have to learn to live with them.

● The idea that people should give up on ownership and be content to rent.

● That areas zoned for single family dwellings need to be changed to allow rental-style buildings (this benefits landlords immensely).

● That environmental laws need to be loosened to destroy assigned green spaces and instead develop them into rental units.

Always ask:

Do they have a financial interest?

What’s their bias?

Do I have a financial interest? What’s my bias?

Beware of economists not disclosing they are paid for their opinion. See: Interview of leading economist Frederic Mishkin:

https://www.youtube.com/watch?v=8lHvTKzfu8Q

• Canada 1% (10%0 -only can understand. Enough fair distribution- more vulnerable- better society

• Critical mass- not majority

Contrary to the popular idea that middle income buyers with bad credit caused the real estate crash and subsequent recession of 2008, it was in fact the fault of wealthy borrowers who flooded the market with properties bought for the intent of “flipping”.[10]

First: Get the information: Require all deeds to single family dwelling units to disclose the beneficial owner with no exceptions. The Ontario liberals have required that on all new purchases.

● Prohibit foreign ownership of single-family dwelling units, including condominium units.

● Speculation tax on house flipping. Any single family dwelling sold within one year of purchase would be subject to a 20% tax. [1976 ended flipping]

● Encourage more affordable housing in terms of smaller houses, townhouses and condominiums, not these monster homes on small lots.

● Prohibit ownership by corporations, trusts or any way except, by the beneficial owner (an individual)

● Prohibit ownership of more than two single dwelling unit properties by any individual or corporation

● 20% per year tax on all land held for speculation

Andrew Weaver, leader of the B.C. Green Party, is proposing measures similar to those found in New Zealand, which strongly restricts or even bans foreign ownership of residential properties[11].

US Treasury pilot project requiring title insurance companies to find beneficial owners. This resulted in a 70% reduction in cash purchases by such companies[12].

While some solutions could be genuinely effective in the fight against rising housing prices, other programs and suggestions have proven wholly useless. These include:

● $20,000 First-Time Home Buyer’s Incentive — Although well-intentioned, this measure will have little to no impact for the larger problem markets like Toronto and Vancouver, and is open to exploitation by the recipient[13].

● Reduced amortization to 25 years.

● 15% foreign owner tax — This is largely ineffective as it doesn’t prevent the root problem of housing scarcity to exist, nor does it directly fund any kind of measure to provide more affordable housing. Tax created small pause, then continued upward

● Liberals 1% tax on foreign owners
Make 10–20% per year

The Liberal, Conservative and NDP platforms all propose taxing nonresident buyers of housing properties. These taxes and through ineffective for two reasons, the land values will escalate to more to cover the one time tax; and these buyers are not concerned about cost. This is the illegal money, and Canada allows one of the most cost-effective methods of investing illegal money in a secure environment. Even if the tax was doubled or tripled, it would not have much effect.

Compounding the issues , the Ontario Progressive Conserative party under Doug Ford is no longer publishing data about the foreign buyers tax data mandated by the Ontario liberal government, making it impossible to track who is buying what, how the tax is being collected, and how effective the program actually is[14].

Last week, a report to the B.C. government suggested $5.3 billion in crime proceeds was used to buy real estate in that province in 2018. That report recommends the province take steps to increase data collection and boost transparency in real estate transactions.

Most government measures are also woefully unprepared to deal with emergent issues such as cryptocurrencies. While some are scams, others like BitCoin are well-maintained by their supporters and can prove impenetrable without specific and qualified knowledge of their inner workings. Policy makers with this kind of expertise are currently in short supply, giving BitCoin and others an advantage where money laundering and other dark money practices are concerned.

The unfortunate long-term consequence of all these issues is that Canadians become priced out of their own cities, creating a market gap that precedes a recession. This ultimately works against every party except the very wealthy, who can remain untouched due to their resources.

Low- and middle-income landlords and realtors are left with bad investments and often bankrupted, as are homeowners. The housing market as a whole has a ripple effect on the broader economy.

Realtors and landlords can contribute meaningfully to a sustainable market, but to do so means refraining from taking advantage of the market, and playing a longer game that is just as equitable, without destabilizing the economy.

[1] Jennifer Keesmaat — May 8 2019, The Globe and Mail

[2] Michael Goldstein — June 8, 2018 — Forbes

[3] Robert Cribb and Marco Chown Oved — January 25, 2017 — Canada Papers, Toronto Star

[4] Philip Lee-Shanok — March 21, 2019 — CBC News

[5] Greg Rasmussen- May 14, 2015 — CBC News

[6] Mike Crawley — May 13, 2019 — CBC News

[7] Marco Chown Oved and Robert Cribb — January 22, 2017 — Canada Papers, Toronto Star

[8] Jan Weir — November 13, 2017 — Rantt Media

[9] Bruce Ball, FCPA, FCA, CFP — April 9, 2019 — Chartered Professional Accountants Canada

[10] Gwynn Guilford — August 29, 2017 — Quartz

[11] Liam Britten — August 15, 2018 — CBC News

[12] Max de Haldevang — June 11, 2019 — Quartz

[13] Daniel Tencer — June 17 2019 — Huffington Post

[14] Mike Crawley — May 13, 2019 — CBC News





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