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Tax

CRA 'striking gold' in some housing rebate claim cases

News that the Canada Revenue Agency (CRA) has recently imposed millions of dollars in penalties as a result of unpaid taxes in the country's largest real estate sectors comes as no surprise, given the taxman's ongoing focus on new housing rebate claims, Canadian tax lawyer David J. Rotfleisch tells AdvocateDaily.com.

As the Toronto Star reports, the CRA has identified almost $600 million in unpaid taxes in real estate markets in B.C. and Ontario over the last three years, levying $47 million in penalties over the period.

In B.C., says the Star, more than half of the unpaid taxes were related to homebuyers not paying GST — required on newly built homes in Canada, and on other real estate transactions — while in Ontario, this accounted for 90 per cent of the unpaid taxes.

As Rotfleisch, founding tax lawyer with Rotfleisch & Samulovitch Professional Corporation points out, the CRA provides new housing rebates for those who have purchased or built a new house or have substantially renovated a house and plan on residing in it or letting a relative live there. The house must have a fair market value of less than $450,000 in order for the rebates to apply.

Recently, the CRA noted that there “continue to be tax compliance risks in the real estate sector, particularly in the Vancouver and Toronto markets” — in 2017-2018, the taxman says it assessed $102.6 million more taxes than in 2016-2017, with penalties increasing by $19.2 million from one year to the next.

The CRA’s project focusing on the real estate sector has been ongoing for several years, says Rotfleisch.

Real estate has been a focus. There have been very specific questionnaires going out to any purchaser of a condo and they’re challenging new home rebate claims — in a lot of cases, improperly. In other words, people are entitled to new home rebates but the CRA is giving them a hard time.

"But in other cases, the CRA is definitely striking gold and finding unreported income and improper housing rebate claims," he adds.

“It’s a known problem and it’s been spoken about in the press, especially in B.C., for a long time. In B.C., the perception is that there are a lot of expensive homes owned by people showing no income. So some of that is certainly the norm, parents buying a condo for their kids when they’re in school and some of it is legitimate."

In other cases, however, Rotfleisch says people are not reporting their worldwide income, which is required if you are a Canadian resident.

As the Star reports, the B.C. government announced in its recent budget that it will require landowners to identify themselves via the province’s land registry.

If B.C. goes that route, it wouldn’t surprise me if other provinces follow suit and then it makes it a lot easier for CRA to audit real estate transactions,” says Rotfleisch.

For those who have unreported real estate-related income but have not yet been contacted by the CRA, Rotfleisch says the Voluntary Disclosures Program (VDP) may still be an option.

“It has morphed very much into a less taxpayer-friendly program but it’s still available. We’re still doing voluntary disclosures. It’s a two-track system and the track you go into and the amount of relief you get depends on the facts of your case,” he explains.

A basic, ‘you bought a house but didn’t report it’ should qualify for the general track, which is the more generous relief akin to the old program."

However, when making a voluntary disclosure application, taxpayers are now required to make a prepayment of the estimated taxes owing, says Rotfleisch.

“That’s one of the big changes.”

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