Written on behalf of Feigenbaum Consulting
We’ve often blogged about tax issues pertaining to real estate, including the fact that fewer home buyers are purchasing homes in Toronto, Vancouver and other hot markets after the introduction of Foreign Buyers’ Taxes and other measures, how buying property from a non-resident of Canada can have significant tax implications, as well as the tax consequences of owning a cottage, among others.
Now, the Star is reporting that the Canada Revenue Agency has recovered more than $600 million in Ontario and more than $420 million in British Columbia over the last four years from individuals who knowingly made false statements on their tax returns and who engaged in other forms of tax evasion.
Attempts to Cool Down Hot Markets
The CRA has deemed Ontario and B.C. (two of the hottest housing markets in the country) as being at “high risk” for tax evasion. A number of government measures have been introduced to try to cool down the market and dissuade illegal behaviour.
These measures included:
- A federal mortgage stress test;
- The previously mentioned provincial speculation taxes;
- Vancouver’s empty homes tax and increased property tax on homes worth over $3 million;
- The newly created provincial registry in B.C. which requires condo developers to record condo pre-sales.
In addition to the above-mentioned measures intended to cool down rapidly escalating prices, CRA auditors have also been placing increased focus on taxpayers in these two jurisdictions since 2015.
Auditors reviewed upwards of 40,000 tax returns filed between 2015 and 2019 and resulting data revealed:
- Most of the audits (34,314) were carried out in Ontario;
- 64% of the money recovered from Ontario tax-payers as a result of the audits was from GST/HST rebates on the sale of residential properties;
- 7,400 files were audited in B.C.;
- 63% of the money subsequently recovered from B.C. taxpayers was from those who under-reported their income.
- There was a significant increase in collections in B.C. in the last year ($169 million was recovered in 2015/2016; $161 million was recovered in 2016/2017; and $434 million was recovered in 2018/2019).
How Audits Are Conducted
The CRA uses various methods to identify potential tax evaders. Some red flags that invite CRA scrutiny include:
- Individuals whose reported income does not match their lifestyle (e.g. low reported income but an expensive home);
- Property flippers who do not report their full profit, or do not report any profit as either a capital gain or business income.
In conducting their investigations, the CRA looks for unreported GST, unreported capital gains, and unreported global income.
Biggest Take-Aways from the Recent Audits
The CRA concluded that the money collected in the wake of the recent audits primarily came from three different areas:
- Unreported income tax;
- Unpaid GST/HST on the construction of new homes; and
- The GST/HST rebate available to new home buyers purchasing a home that is to be their primary residence or the primary residence of a relative.
The 2019 federal budget allocated $10 million towards a real estate task force devoted to tax evasion in real estate. The force will initially continue its focus on Vancouver and Toronto, with the goal of expanding.
How Can Feigenbaum Law Help?
We will continue to follow any and all developments in this regard and will provide updates as more information becomes available. In the meantime, if you have questions about personal tax planning, including tax planning as it relates to major assets such as real estate, contact Feigenbaum Law.
Our goal is to create the best tax strategy possible for our clients. We work with you to create a personalized solution that will streamline your compliance requirements.
Our focus is complex matters related to tax planning for individuals with high net-worth. We offer services to clients in the US, Canada and around the world.
Contact us to learn more about how we can help or call us at (905) 695-1269 or toll free at (877) 275-4792.