The Ghost Immigrants

Immigration and tax authorities can take several steps to stop fraudulent residency claims.

Comments Views

​​​Wealthy foreign investors are using loopholes in Canadian immigration rules to acquire property and avoid taxes, CTV News reports. In many cases, these "ghost immigrants" do not actually live in Canada and are using their properties to fraudulently claim residency status. This activity, in turn, circumvents the government's efforts to limit foreign real estate speculation, which has run up property values in Canada's largest cities, the report notes. In one case, a Chinese millionaire who had purchased multiple million-dollar homes in Canada claimed on his income tax form that he only had CAN$97 in worldwide income. In reality, he owned several large businesses in China. Between April 2015 and September 2017, the Canadian Revenue Agency (CRA) recovered CAN$331.2 million from more than 21,000 audits in Ontario and CAN$117.9 million from more than 4,000 audits in British Columbia.

Lessons Learned

Immigration is a widely debated topic. Much of the immigration debate involves individuals who have moved to another country. Yet, many countries, including Canada and the U.S., have experienced an influx of wealthy ghost immigrants who secure permanent residence, purchase properties, and then return to their home countries. The immigration and tax misrepresentations include falsifying rental and employment agreements and falsely reporting income on tax returns. Unfortunately, many of these individuals are not paying their worldwide tax obligations and are reaping other benefits of life in their "new" countries.

The CRA's statistics of the numbers of immigration-related audits conducted and their results indicate that the problem has become widespread in Canada. Yet, fraudulently claiming to be physically present in a country is a scam that dates back for decades. In today's social media world, these same methods still are being used to circumvent the physical presence requirements of maintaining permanent residence to qualify for citizenship.

The Canadian government and others can learn many lessons from this case. As the tax expert in this story points out, there should be a much greater emphasis on using audits to combat ghost immigration fraud. Here are some of the reasons and ways in which audits can be better used:

  • Successful audits are revenue generators and are more feasible than ever to catch ghost immigration fraud. The audit statistics cited in this story might make it appear enough is being done, but it is unclear whether tax administrations' focus on this problem is keeping pace with the dramatic increase in immigration levels. For example, the CRA acknowledges that it does not have sufficient resources to tackle the problem satisfactorily. In the past, the CRA has stated that it was too difficult to audit these cases and collect the taxes owed. Foreign fraudsters know this, so increased scrutiny and a communications campaign could send a deterrence message to those engaging in fraudulent behavior.

  • Cost-effective and scalable data-mining techniques allow auditors to cross-reference employment/business and asset information that an immigrant supplies to immigration officials when applying for status with the worldwide income the individual claims after he or she is granted residency.

  • Signing tax treaties that include an exchange-of-information clause with countries that are major sources of immigrants can help pinpoint fraudster activity. Recent anti-corruption movements in countries such as China and India have enhanced the potential usefulness of these treaties for tax administrations in cases involving immigrants from countries where such information was previously not available.

  • Another important trend is the introduction of whistleblower programs by tax authorities in the mid 2000s. These programs recognize the increased importance whistleblowers have in tax evasion collections worldwide. As a result, there are now many potential informants — in banks, accounting firms, real estate brokers, etc. — who can supply financial information on tax evasion.

  • Social media and online information make lifestyle audits easier and more accurate, especially with today's computing power.

  • Assets, such as highly inflated real estate in Canada, have increased significantly in value. Consequently, there are now many seizable assets within the easy reach of tax agencies.

 

Given these methods and changes, it is in taxpayers' and tax administrations' best interests to increase tax audits in this area. In addition to audits, more needs to be done to combat this kind of fraud. Some advocates recommend replacing or adding to the current physical presence requirement in immigration and citizenship law, which is considered by many to be expensive and intrusive to enforce. For example, enhanced measures such as exit/entry controls are required that are beyond what is in place today for people traveling through airports.

Requiring immigrants to declare themselves "tax residents" of a nation, such as Canada or the U.S., could ensure individuals pay full tax on their worldwide income. This tax residency requirement could be another criteria for maintaining permanent residence and fulfilling naturalization requirements for citizenship. Increasing fines and penalties, including jail time, would be an additional disincentive to fraudsters.

March is Fraud Awareness Month in Canada, but every month should be similarly designated. Internal auditors should take time to talk to someone who would benefit from hearing about fraud risks and what auditors can do to deter and prevent fraudulent activity.

Art Stewart
Internal Auditor is pleased to provide you an opportunity to share your thoughts about the articles posted on this site. Some comments may be reprinted elsewhere, online or offline. We encourage lively, open discussion and only ask that you refrain from personal comments and remarks that are off topic. Internal Auditor reserves the right to remove comments.

About the Author

 

 

Art StewartArt Stewart<p>​Art Stewart is an independent management consultant with more than 35 years of experience in internal audit, financial management, performance measurement, governance, and strategic policy planning.​​​</p>https://iaonline.theiia.org/authors/Pages/Art-Stewart.aspx

 

Comment on this article

comments powered by Disqus
  • IIA_Gleim_MAY IAO_Premium 1
  • SCCE 2018 InternalInvestigations_May16_31_Premium 2
  • IIA_CERT_AFW_IAO_May2018_Premium 3