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Taxman's Skewed Appraisals Add Up to Abuse :CRA SOTW


Taxman's skewed appraisals add up to abuse
Don Cayo, Vancouver Sun - Published: Tuesday, May 13, 2008

What is "fair market value" for a property? Is it what a buyer
actually pays in an arm's-length deal? Or what somebody thinks a
different buyer might have paid in different circumstances?

And what if there is no buyer -- a property changing hands through
inheritance, for example? Is it worth the amount for which it's
currently assessed? Or what somebody decides, months later, it should
have been back when the transfer takes place?

If you're naive enough to think common sense and fair play might apply
-- of course it's the price they paid, of course it's the current
assessment -- then you aren't a taxman. Our government bullies,
federal and provincial, pay no heed to such constraints.

Two horror stories landed on my desk within hours of each other last
week detailing how tax collectors -- one representing Ottawa, and one
in Victoria -- put the screws to taxpayers in shockingly similar ways.

The first involves Canada Revenue Agency. The story is told to me by
businessman Leonard Schein, but, judging from what CRA has told him,
it's happening to a lot of others as well.

Schein bought a pre-sale condo in a new Yaletown building from
Concorde Pacific in 2001 for $330,000. When it was ready for occupancy
three years later, he paid about $23,000 in GST on the full price, as
he was required to do. As a rental unit costing less than $450,000, it
was eligible for a partial rebate, so he applied for and got a cheque
for $8,401.76.

He kept his end of the bargain, renting out the suite ever since. But
CRA is welshing, in its brutally, heavy-handed way.

Two weeks ago, Schein got a call from CRA telling him that he -- and
many others -- have to send the money back. The reason? They (gasp!)
got a good deal when the bought their property. CRA believes it was
actually worth more than $450,000, so it won't grant the rebate.

A few days later, he got the bill. It's for the original $8,401.76,
plus $842.77 in "late remitting penalty" (even though they sent him
the rebate cheque in the first place) and $1,410.96 in interest -- a
whopping $10,655.49 in all.

Now Concorde Pacific didn't get where it is -- to build and sell more
than 10,000 units in Vancouver -- by under-pricing its products. And
it pre-sells almost all of them because that's how new towers are
financed.

Pre-sale buyers tend to do well in Vancouver's sharply rising housing
market, but that doesn't mean they pay too little. It means they also
took a risk -- they'd have lost their shirts if, for example, they'd
bought a pre-sale two years ago in a American city. And they've tied
up big downpayments for two or three years before taking occupancy.

So the price they paid is the price the unit is worth under such
circumstances.

But try telling that to the heavy-handed taxman. Schein recently
bought a second rental unit in another new building for $358,000, and
CRA rejected his application for a partial rebate out of hand. The
arrogant taxman simply deemed this to also be too good a deal -- a
property actually worth more than $450,000.

When Schein sells his condos, the market at the time will establish
their worth -- it will be whatever he can get. It looks like that will
be more, probably much more, than he paid. If so, the sales will
trigger capital-gains liabilities.

That's as it should be. In the meantime, the regulations that allow
CRA to shake down Schein and others like him should be reassessed and
repealed. CRA may require the ability to deem the value of properties
in cases where non-arm's-length vendors play games to create tax
advantages. But they shouldn't be using this power to second-guess the
market and extort money from people who get what they pay for, and pay
for what they get.

Mind you, it seems the provincial Revenue Department is just as bad.
Beth Dierks of Dierks Equipment Sales Ltd. in east Vancouver tells me
that she and two siblings are being similarly jerked around over an
inheritance.

Their father died late in 2006, and his will was probated by mid-2007.
Dierks, her brother and her sister re-mortgaged a building they
jointly inherited in order to pay the property transfer tax and the
capital-gains tax.

The property, in the family for 40 years, was assessed at $400,000
when their dad died, but that had risen to $600,000 by the time the
will was probated, and their tax payments were based on the higher
figure.

But now, Victoria is hounding them for another big payment based on
yet another assessment -- $918,000 -- that didn't come out until early
this year.

The province claims that's what the building was worth back when the
probate was done.

But if any business on earth failed to adjust its prices when the time
was optimum, it certainly couldn't expect to go back and do it later.
If you snooze, you lose. It's not fair to change the rules when the
game's already in play.

So here's an offer for federal Revenue Minister Gordon O'Connor and
provincial Revenue Minister Rick Thorpe, whose departments are
responsible for these taxpayer abuses: The first to call and say
you've fixed the respective injustice will get a tip of the hat --
maybe even a headline -- in a forthcoming column.

dcayo@png.canwest.com

Visit Don Cayo's blog at www. vancouversun.com/blogs
© The Vancouver Sun 2008

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