A Vancouver real estate developer and speculator featured in a recent Globe and Mail investigation is pledging to pay his fair share of taxes and work with the Canada Revenue Agency to make sure his books are in order.
Kenny Gu sat down with The Globe for an exclusive interview because he said he wanted to clear his name after allegations of possible fraud and tax evasion in connection with flips of residential properties. "I want to show you I am a good guy. I am not that kind of guy," Mr. Gu said. "My family is here. My children are here. They will live in this country forever. For a long time. So, I don't want them to see or to look at me as if I break the law or don't want to pay the taxes to the country."
Mr. Gu said he came forward after his ex-employee Demetre Lazos persuaded him it was the right thing to do. The Globe investigation was based on a large cache of documents from Mr. Gu's operation supplied by Mr. Lazos. The paperwork showed millions of dollars have flowed through Mr. Gu's personal and corporate bank accounts in recent years, while he claimed personal income of $45,865 on his 2015 tax return. Mr. Gu initially did not respond to The Globe's requests for interviews. Mr. Lazos said he met with CRA officials in Vancouver on Tuesday to show them the same documentation.
Mr. Gu has now provided The Globe with more details on his finances. He said if anything reported on his taxes was incorrect, it was unintentional, because his books are handled by professionals he hires. He said he is also prepared to meet with the tax agency to set things straight.
"I am open. I don't fight. Any time, I will meet with them," Mr. Gu said. "Because I don't want to do anything to break the law here or to avoid the tax, so everything I am giving to the accountant and the lawyer and they help me to do these things. Maybe they do something not so good. But from my side, I don't know."
According to Mr. Gu's documents, companies that he owns designed, built or renovated 32 Vancouver-area properties since 2011. In addition, he and several clients also flipped five homes in the past two years for $4-million more than they paid as prices in Vancouver skyrocketed. Mr. Gu's family now lives in one of those houses in West Vancouver. His wife bought it for more than $2-million, with no mortgage. The family's vehicles include a BMW and a Mercedes.
Mr. Gu explained that lifestyle is possible even though his reported income is low partly because he and his wife brought about $3-million into Canada from China after they came to Vancouver under the immigrant investor program in 2009.
First, he said, he started a prefab construction business and lent money to it, but it failed. Mr. Gu explained that after his companies began making money in real estate in 2014, some of those profits went to his family, tax-free, to repay the loan. His documents show Mr. Gu's wife, Min Tang, also made $1.17-million in gross profit buying and selling six more residential properties since 2010. Mr. Gu said the family lived in three of those homes, so the sales were classified tax-free under the principal residence exemption.
However, he indicated his tax bill is about to go way up.
"This year, I will have big income. Big income," Mr. Gu said. "Which I will report to the taxes."
Financial statements provided to The Globe by Mr. Lazos show Mr. Gu's companies recorded deficits until early 2015. However, new CRA notices of assessment from Mr. Gu show two of his companies now owe almost $42,000 in taxes on newly reported income. Those notices are dated four days before The Globe's initial story was published. "The documents you had are only part of the reality," he explained.
As The Globe first reported, Mr. Gu said his real estate deals were financed with money from China, provided by investor clients. "They trust me. That is why we do business together. They invest the money. I invest my knowledge and the work. Then after we finish the project, we share the profit."
Mr. Gu said he understands why Canadians are upset about real estate speculation driving up home prices. He said he would rather develop properties than flip them, but that he sold recently because the gains were huge and development costs and delays were prohibitive. He said he would also like prices to stabilize because his business would suffer "terribly" from a crash.
"The policies from government need to be careful," Mr. Gu said. "I want the business to keep going – a long business. Not just the price go very high and then go down."