Canadian real estate owners are stuck paying a buttload in penalties after trying to avoid taxes owed. New data from the Canada Revenue Agency (CRA) shows their crackdown on real estate owners/sellers has led to billions in recouped revenue. Data provided by the agency also shows they’ve collected substantial fines adding up to hundreds of millions, after diving into real estate transactions. The program is largely focused on Greater Toronto and Vancouver, as a high volume of red flags were being set off.
The CRA has been on a mission to crackdown on real estate tax evasion, especially in Ontario and BC. Redflags they’re looking for include:
Property flippers: People who regularly flip property for income without properly disclosing the funds might get a second look.
Unreported capital gains: Sold property and didn’t declare? That’s a problem, even if taxes aren’t owed.
Unreported worldwide income: Have cash coming in from outside of the country? If the CRA finds hints of it and you haven’t told them where it’s coming from, they might have some questions.
Unreported GST/HST on a new or substantially renovated home: Built a new home on a lot and sold it? You were supposed to collect GST/HST. Ditto in some cases where owners “substantially renovate” a property before selling it (think gutting it and leaving a shell, probably not just adding a new kitchen).
Lifestyle Assessments: If the owner is balling in a high value home and there’s a big gap between income and the payments, the CRA might want a second look.
There are other flags as well since the agency can correlate data, but those are the bigs ones they mentioned.
Canadian real estate owners paid substantial penalties for non-payment of tax obligations, just in Ontario and BC. From April 2015 to March 2022, the CRA’s real estate crackdown produced $2.2 billion in audit assessments. Included in that amount was $298.9 million in penalties for non-payment. Once again, this isn’t the full extent of the program but just in two provinces. It’s also worth noting the program first began in 2015 but most of the action has been over the past few years.
The Canada Revenue Agency (CRA) results of audit activities related to real estate in Ontario and BC from April 2015 to March 2022, and the source program for the assessment. The amounts include assessed penalties.
Source: CRA; Better Dwelling.
The audit assessment values are split into three major categories: Income tax, GST/HST, and GST/HST New Housing and new residential property rebates. Ontario and BC both showed about $1.1 billion in audit assessments respectively, but for very different reasons.
The Canada Revenue Agency (CRA) penalties resulting from the audit of activities related to real estate in Ontario and BC from April 2015 to March 2022.
Source: CRA; Better Dwelling.
Ontario’s audit assessment included $147.6 million of income tax, and another $332.2 million GST/HST. Most of the value was in GST/HST New Housing and new residential property rebates, coming in at $662.9 million for the period.
Over in British Columbia the audit assessment was made up of GST/HST ($266.7 million) and GST/HST New Housing and new residential property rebates ($26.2 million). The lion’s share was income tax though, which represented a whopping $844.6 million of the assessment.
The Canada Revenue Agency (CRA) results of audit activities related to real estate in Ontario and BC from April 2015 to March 2022, and the source program for the assessment. The amounts include assessed penalties.
Source: CRA; Better Dwelling.
That’s just two provinces, but the tax authority says they primarily focus on Greater Toronto and Greater Vancouver. Pricey real estate combined with high transactional value, and aspiring investors that might not know the rules are concentrated in these regions. The recent real estate boom and our recent dive into property registry data shows a huge investment surge across the country, perhaps resulting in wider crack downs.
Post Credit: Better Dwelling Published AUGUST 2, 2022
(https://betterdwelling.com/canadas-tax-authority-has-been-on-a-multi-billion-dollar-real-estate-crackdown/)
