The CRA increased its focus on non-compliance in major centres such as the Greater Toronto Area and B.C.’s Lower Mainland beginning in 2015. The cumulative value of additional tax and penalties assessed from April 2015 to March 2023 stands at $2.7 billion from around 75,000 total audits.
In 2019, the federal government boosted the CRA’s efforts further, pledging $50 million over five years to create a real-estate task force, plus $10 million annually on an ongoing basis.
The government seems to be getting its money’s worth, said Anna Malazhavya, founder of Advotax Law in Toronto.
“It’s one of, if not the most profitable audit projects of the CRA,” she said.
According to the CRA’s data, almost 53,000 of its real-estate audit files were related to Ontario claims for GST/HST rebates available on new or significantly renovated homes. Together with a further 6,000 rebate audits conducted in B.C., these files have generated more than $800 million in combined assessments and penalties since 2015.
When a buyer intends to flip a new or significantly renovated property, the CRA notes the property may be ineligible for a GST/HST rebate, known as the new housing rebate. Meanwhile, taxpayers whose primary residence is outside the country would not qualify for the new housing rebate, as the property would be a secondary place of residence.
Malazhavya said the CRA’s recent focus on GST/HST is reflected in her own practice, which consists predominantly of tax files with a real estate component.
“The CRA still see this as a major, major revenue generator. It’s not a very time-consuming or difficult audit to conduct,” she said, pinpointing 2018 as the moment when GST/HST cases began to spike.
Before then, Malazhavya said most of her real estate clients were facing income tax audits based on allegations of underreported income or misuse of the principal residence exemption. Since 2018, she’s seen the agency making better use of its powers to obtain purchaser information from commercial builders and others involved in constructing new real estate.
“The quality of audit investigations has improved quite significantly,” Malazhavya said. “Now of course, there will always be people caught who have done nothing wrong, and that’s where we come in and have to protect them.”
David Rotfleisch, tax lawyer with Rotfleisch & Samulovitch Professional Corp. in Toronto, also acts for clients caught up in audits and said a significant focus of his work is on penalties levied by the CRA.
The CRA reported that since April 2015, 3,432 penalties amounting to $336 million were applied in real estate cases, representing 4.6% of the 74,699 total audit cases for the period.
The Income Tax Act allows the CRA to apply a penalty equal to 50% of the avoided tax if the taxpayer knowingly makes a false statement when filing their return. Rotfleisch said courts have consistently held that the CRA must prove a penalty is warranted — but that doesn’t always stop the agency from applying the penalties in the first place.
The $426 million identified by CRA audits last year matched the figure assessed for 2021–2022, but was down from the 2019–2020 peak of $527 million.
Malazhavya said the figure could rise again, noting that the Covid-19 pandemic caused many CRA investigators to work at reduced capacity or be reassigned to other projects, including misuse of the Canada Emergency Wage Subsidy.
For example, one of her clients had a real estate audit paused in 2020, only to be notified in the last couple of months that the case was being reopened.
“We have seen these audits coming to life just recently,” Malazhavya said.
The CRA focuses on these 10 areas in its real estate audits
Reported income does not support lifestyle
Flipping
Unreported capital gain upon property sale
Unreported capital gains tax on property sold by non-resident
Unreported worldwide income
Unreported GST/HST on the sale of a new home
Improperly claiming GST/HST rebates
Not classifying oneself as a land developer
Improper reporting of the principal residence exemption
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
