CRA continues to aggressively audit the Real Estate Market

Posted By: Bobby B. Solhi on August 2, 2016 at 12:02:20 in All , Articles , Case Comments , News

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The CRA continues to aggressively audit the real estate market in the Greater Toronto Area and throughout Canada.

A recent Financial  Post article highlights the scale of this CRA real estate audit project in the GTA and Vancouver markets where for the 2016 year-ending March 31, 2016, the CRA audited 1864 files and recovered about $50M in taxes.

In a related press release, the CRA set out a number of audit risk areas which included:

a) Source of Funds – CRA focused on identifying where a taxpayer obtained funds for a down payment where it does not match their reported income or disclosed assets.  This item can often lead to what is called a net worth audit which is a crude means to arrive at unreported income of a taxpayer where they otherwise lack sufficient documentation.

b) Property Flips – whether renovating and selling, assigning or simply acquiring a property for immediate sale, these transactions are typically fully taxable as income (not a capital gain).  CRA has a focus on identifying these transactions through data analysis.  These audits often lead to gross negligence penalties also being imposed in addition to the unreported income.

c) Unreported GST/HST – purchasers of new homes are actively being challenged by the CRA on their claim for the HST New Housing Rebate where they do not make the property their or a qualified relatives primary place of residence.  This has resulted in a significant CRA audit project in and of itself.  Likewise, builders of new homes are also required to charge GST/HST on the sale of the home unlike a used or resale property.

d) Unreported Capital Gains – sale of real property typically will result in a capital gain unless it is the sellers principle place of residence, which allows for a complete exemption from the capital gains tax.  ‘For non-residents, the transaction is often a taxable capital gain.  The CRA has audited such individuals where property has been sold without reporting the taxable capital gains.

There does not seem to be a cooling in this hot real estate market, which can only mean that such audits will continue to expand throughout Canada.

For taxpayers that suspect they may have been non-compliant, they may consider the use of the CRA’s voluntary disclosure program to become compliant without penalties or evasion charges.




Financial Post

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