The Canada Revenue Agency has 85 new full-time staff investigating real estate tax issues in British Columbia, according to an internal webinar document leaked to media outlets including The Globe and Mail and the South China Morning Post. The South China Morning Post has posted the entire leaked document online.
“The Canada Revenue Agency (CRA) is actively undertaking comprehensive compliance work related to known areas of risk in the real estate sector,” the leaked document states.
Much of that work, to be conducted by 50 income-tax auditors, 20 GST auditors and 15 workload-development officers, will involve transaction reviews to identify home flipping transactions where a principal residence exemption may have been claimed or capital gains not reported, identifying builders that don’t comply with filing requirements or properly report GST, auditing for compliance with non-resident disposition requirements, and conducting residency reviews to determine if international income should be reported in Canada.
The agency will also collaborate on “lifestyle audits” with the Financial Transactions and Reports Analysis Centre (FINTRAC), Canada’s “financial intelligence unit.” Investigators will look for individuals purchasing or living in high-value homes but reporting minimal income.
As an example of home purchases not matching reported income, the leaked presentation highlights a home sold for $5.8 million whose owner claimed the working income tax benefit for low-income individuals.
After the leaked document was published, a CRA official sent a statement to the South China Morning Post to clarify some details of its compliance actions.
“When new risks of tax non-compliance emerge, such as in the real-estate sector, the Canada Revenue Agency (CRA) will begin compliance projects and track results closely,” wrote Anne-Marie Lévesque, the CRA’s assistant commissioner, domestic compliance programmes branch. She noted that the agency has been monitoring transactions in the Greater Toronto Area for several years and has recently begun “actively monitoring and auditing real estate transactions in British Columbia.”
The CRA conducted 339 real estate audits in BC last year, Lévesque wrote, mainly focussed on property flips and GST non-compliance. Those audits recovered $14 million.