Investor Immigration Overview – Part 1: What Went Wrong?
By Pace Law | April 29, 2016
This is the first in a three part blog series on the federal and Quebec investor immigration programs. This post looks at the history of the programs and the criticism they are receiving. We will cover some possible fixes for the investor immigration system in the upcoming posts.
Several national and international media outlets have recently published negative stories about high-net-worth individuals who have migrated to Canada under the federal and Quebec investor immigration programs.
While the federal immigrant investor program was closed a couple of years ago, the Quebec program still accepts about 1800 persons per year, to the dismay of some pundits. Two themes bother them the most: the rising cost of housing in Canada and rich foreigners not paying their fair share of taxes.
Lately it has become the norm to equate investor immigration with the high cost of housing in major Canadian cities. Here is a typical example:
Politicians decided to “reboot a troubled regional economy through an infusion of activity from the growth region of the Asia Pacific,” UBC geographer David Ley says in a peer-reviewed paper published in The International Journal of Housing Policy.
Largely as a result of governments’ efforts to attract wealthy immigrants and investment from East Asia, “house prices have risen rapidly and the detached housing market is now unaffordable to most Vancouver residents,” writes Ley.
Given that federal and provincial governments have shown a “minimal response” to Metro residents’ housing difficulties, Ley concludes most politicians have accepted that astronomical prices and mortgage debt are just the “collateral damage” from expanding the B.C. economy.
As far as taxes go, the general complaint is that recent high-net-worth individuals are not paying their fair share of income tax on their worldwide earnings. In effect, they are enjoying the benefits of Canadian healthcare and education systems without supporting the systems through their taxes:
Refugees who have come to Canada over the past 30 years have paid more income tax in this country than immigrant investors admitted under the now defunct immigrant investor program, critics say…
They may have been millionaires, but they were earning very little money here in Canada. Immigrant investors declared about $18,000 to $25,000 of income annually, he said.
“Why? Either because they were living off existing wealth, or they weren’t declaring their [global] incomes,” Young said.
The “no tax” argument, however, ignores the sales and property taxes that investors are paying whenever they buy anything, including a house, condo, and vehicle.
End The Quebec Program?
The major thrust of the articles appears to be that Canada should do away with the Quebec program, but do not acknowledge that Quebec has the right to offer it.
As a practical matter, Quebec has long been in control of its own immigration policy and it has been successful at it. The Quebec investor immigration program brings in about $1.6 billion dollars per year of new investment to the province. As the Quebec government gets to hold the money for five years, about $8 billion is in play which is used to provide loans to small and medium-size businesses in Quebec.
It’s a good deal, as investors’ money is loaned to Quebec interest-free. If Quebec were to cancel the program, this huge source of funds would disappear and the province would spend the next five years paying back all of the investors in the program. That money would have to come from somewhere. Who first?
Commentary has also focused on the fact that persons accepted under the Quebec program are not staying there but are moving to Toronto and Vancouver and further fueling the rapid rise in high-end housing costs in those cities. For the most part, it is true that Quebec gets the initial investment money and the rest of Canada gets the people. However, mobility rights in the Canadian Charter make it illegal to bar someone from moving to another province. Would the commentators like to see Quebec turned into a virtual prison for immigrants? One would hope not. Besides, it is doubtful that investor immigrants to Quebec would choose to move to British Columbia and live in one bedroom apartment.
What Happened To The Federal Program?
The federal government had their own parallel program which resulted in foreign investors making interest-free loans to Canada. In turn, the money was passed on to provinces at very low interest rates. That source of funds dried up when the program was cancelled in 2014. At the same time, the federal government also closed down the Entrepreneur Program for the simple reason that the entrepreneurs who were approved under this program rarely, if ever, followed through on their business plans.
Why does Quebec continue to succeed where the federal government failed? One big reason was the inability of the federal Department of Citizenship and Immigration to properly assess applicants. With the vast majority of applicants coming from China, it was difficult to assess with any degree of certainty the true net worth – and to a lesser extent the business acumen – of the applicants. This led to the second problem: the backlog of applications piled up into the tens of thousands, making it literally impossible that all of the applicants would ever be vetted.
When the federal program first started, there was an expectation that if Canada let in a number of applicants then some would contribute to the growth of the economy beyond investing in property. As the demise of the Entrepreneur Program shows, this was often not the case. In the end, the federal government lost sight of the objectives of their investor programs and instead of amending them simply cancelled them.
In our next post, we will look at the current state of affairs for investor immigration in Canada.