The Government of Canada identifies more than a billion dollars in additional taxes in British Columbia and Ontario real estate markets over the last four years
Annual real estate audit results released with quarterly update
May 30, 2019 Ottawa, Ontario Canada Revenue Agency
The purchase of a home often represents the single largest investment individuals will make in their lifetime. Tax non-compliance and money laundering can push up the cost of housing, making homeownership less affordable for middle class Canadians. For this reason, it is critical that rules for buying or renting housing are applied equally across Canada's housing market, in a fair and transparent manner. The Canada Revenue Agency (CRA) helps contribute to a healthy, competitive and stable Canadian housing market through its efforts to address tax non-compliance in real estate transactions.
Today, the Honourable Diane Lebouthillier, Minister of National Revenue, announced the updated results for the CRA’s audits in the real estate sector. Since 2015, CRA audits have identified over $1 billion in additional gross taxes related to the real estate sector. During this same period, CRA auditors reviewed over 41,700 files in Ontario and British Columbia, resulting in over $100 million in assessed penalties.
Specifically, last year, the CRA assessed $171 million more in additional gross taxes related to real estate than in the year prior, a 65% increase. Penalties also totaled over $57 million, which is more than double compared to the year prior.
Budget 2019 proposes to further increase compliance actions by providing $50 million over five years and $10 million ongoing to create a Real Estate Task Force that will focus initially on the Greater Toronto and Greater Vancouver areas, following the risk as it evolves over time. This will have a direct impact in deterring tax non-compliance in the real estate market. The additional taxes also support the social programs administered by the federal government that benefit all Canadians.
In addition, the CRA has been working collaboratively with British Columbia and Ontario over the last several years to respond to an increase in tax risk in the real estate sector. For example, there has been significant work on information collection and exchange as well as improved tax lead reporting. This work has enabled the CRA to better target the tax risk and has improved CRA audit results.
The Province of British Columbia and the CRA are also collaborating through their participation in the Canada-BC Ad Hoc Working Group on the Real Estate Sector, which seeks to address data collection and sharing needs, regulatory gaps, compliance with tax laws, standards and education, and improving enforcement and prosecution.
"The Government of Canada is committed to ensuring that Canadians benefit from a strong, stable housing sector. With Budget 2019’s proposed multi-year funding for the CRA’s work on the real estate sector, we will create a new Real Estate Tax Force and increase our efforts to combat non-compliance to better ensure tax rules in the real estate sector are followed by all Canadians.”
-The Honourable Diane Lebouthillier, Minister of National Revenue
Builders of new and substantially renovated residences or rental properties are required to collect and remit the Goods and Services Tax/Harmonized Sales Tax (GST/HST) to the CRA when they sell, rent out for the first time, or appropriate the property for personal use. Additionally, purchasers of new residences must ensure they abide by the rules when applying for new housing rebates.
The CRA issues unnamed persons requirements to property developers and builders who have information about buyers involved in a pre-construction assignment sale. This information is used to identify taxpayers who may not be reporting correctly for both income tax purposes and GST/HST purposes.
Property flipping is not illegal; Canadians have the right to purchase and sell property for a profit. However, the income resulting from these transactions must be reported to the CRA.
The Real Estate Task Force will focus on ensuring that:
- Taxpayers report all sales of their principal residence on their tax returns;
- Any capital gain derived from a real estate sale, where the principal residence tax exemption does not apply, is identified as taxable;
- Money made on real estate flipping is reported as income;
- Commissions earned are reported as taxable income; and
- For Goods and Services Tax/Harmonized Sales Tax (GST/HST) purposes, builders of new residential properties remit the appropriate amount of tax to the CRA.
Office of the Minister of National Revenue
Canada Revenue Agency
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