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Douglas Todd: Ottawa insider warns about immigrant-investor programs

Opinion: “The strange story of Vancouver” is the name of an internal immigration department memo that reveals the many things wrong with Canada’s earlier business-investor programs. That hasn’t stopped Ottawa from expanding a related scheme.

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An adviser within Canada’s immigration department is warning about the dangers of entry programs that favour entrepreneurs, given the failure of earlier initiatives.

The internal cautions come at the same time the immigration department, which has been under fire from top bank economists for damaging the economy by bringing in a record 1.25 million permanent and temporary residents in a year, is expanding another program that gives preference to would-be entrepreneurs.

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The internal government memo, obtained by Vancouver lawyer Richard Kurland under an access-to-information request, reveals how an adviser to Immigration, Refugees and Citizenship Canada (IRCC) warned that a variety of earlier immigrant-business programs suffered widespread abuse — resulting in a trivial number of new businesses being opened in Canada, and other problems.

The defunct schemes that targeted wealthy foreign nationals, which the correspondents generally refer to as “business-class programs,” opened the gates to a flood of foreign capital moving into Canadian housing, says the adviser. That raised prices, especially in cities such as Vancouver and Toronto. In addition, the internal email thread alerts decision makers to the way many entrepreneur immigrants ended up paying low amounts of income tax.

The in-house memo comes to light in the same month the Canadian Press reported the IRCC was internally warned two years ago that increasing immigration levels would harm housing affordability and services. A Nanos poll also finds support for migration has in less than a year plunged 20 percentage points, with 53 per cent now wanting fewer immigrants.

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The group email shared by top immigration department officials, titled “The strange story of Vancouver,” reveals just how badly things went with the earlier schemes, specifically the longstanding immigrant-investor and entrepreneur programs, which were poorly monitored.

The email thread shows that senior officials in March of last year were working “under the radar” to expand similar business-class schemes, particularly the so-called Start-Up Visa (SUV) program, to welcome more would-be entrepreneurs into the country who have the “potential” to start a new business.

However, when the directors sought advice from Daniel Hiebert, a former UBC geography professor who is now working in the department’s strategic planning section, he said the earlier programs led to only 15 per cent of business-class immigrants actually starting a business.

“Ouch,” Hiebert says in the email, explaining how most of the business-class newcomers failed to start a new company even though their status as permanent residents was supposedly contingent on it.

The Conservatives disbanded the immigrant investor and entrepreneur programs in 2014, openly saying the people who came in through them were generally not having a long-term positive impact on the country, not bringing in significant investment capital for business, had low ability in Canada’s official languages, were tending not to stay in the country, and were paying far lower taxes than the average skilled worker.

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Even many of those entrepreneurs who did begin a business through the old program dropped it after two years, said Hiebert. “They started businesses to meet requirements and then later let them go.”

Hiebert said, as far as he knows, not one of those entrepreneur-class immigrants ever had their permanent resident status revoked.

Furthermore, Hiebert explained how many of those business-class immigrants who bought expensive houses in the city tended to pay low mortgages and low income taxes.

“This is still the case,” Hiebert wrote. “The story is that many of the residents of these areas came through business-class programs with the intent to retire and live a comfortable lifestyle.”

After initially transferring their money out of their country of origin, typically somewhere in East Asia, Hiebert wrote, most purchased a house “along with a Mercedes, Audi or whatever. And then life is lived quite simply, on a small budget and with little owing in terms of income tax. The kids get to go to UBC or SFU while paying domestic fees, which is a big bonus.”

Hiebert concludes his March, 2023, memo by saying, “I think it’s time to review the economic outcomes of the Start-Up Visa program and I suspect they will show more of the same.”

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At one point in the email thread, Umit Kiziltan, director general of the IRCC, said the “burning questions” that Hiebert raised required the “outmost (sic) attention” while the department evaluates whether to expand the Start-Up Visa program and others aimed at wealthy immigrants.

Also included in the thread are Maggie Pastorek, director of policy, and James McNamee, senior director in the economic immigration branch.

The group email includes a discussion of a study covered in a Postmedia article from 2022, which shows how UBC business professor Thomas Davidoff and others discovered the owners of Greater Vancouver homes with a median value of $3.7 million pay income taxes of just $15,800 — which is exceedingly low for North American cities.

“Most luxury homes in Greater Vancouver appear to be purchased with wealth derived from sources other than earnings taxed in Canada,” said Davidoff’s study, which confirmed earlier research by Statistics Canada and Hiebert himself.

Several years ago, StatCan and Hiebert found the average value of a detached house bought by more than 4,400 millionaire immigrants who came to Metro Vancouver under the investor program was $3.2 million. That compared to an average of $1.5 million for a Canadian-born owner.

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While working at UBC, Hiebert’s studies also found a correlation between neighbourhoods with large foreign-born populations and neighbourhoods that appear to have unusually low taxable incomes, despite their inflated housing prices, such as Richmond and Vancouver’s west side.

Based on the documents provided in response to an access-to-information request, it is not clear how the internal discussion affected later decisions the Liberal government made about its Start-Up Visa program

Last year, however, Ottawa scaled up the annual intake of the Start-Up Visa program from 2022, when it offered 1,000 spots. The program’s intake rose to 3,500 last year and is set to bring in 5,000 this year and 6,000 in 2025.

Immigration department officials did not respond by deadline.

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