Are you selling your investment condo or even a principal residence? If you are involved in any real estate dealings or claiming the HST New Housing rebate, you should be prepared to answer some questions from the CRA.
The CRA is sending target taxpayers a real estate questionnaire to ensure real estate sales were properly reported, and the right amount of tax was paid.
As we reported in this space last year, the CRA is spending $50MM over five years and an additional $10MM ongoing to create a Real Estate Task Force focused on tax compliance in the Greater Toronto and Greater Vancouver areas. CRA reports that since 2015, it has identified over $1 billion in additional taxes related to the real estate sector and assessed an additional $171 million in taxes and $57MM in penalties since last year. (See here: 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)
What are they asking?
CRA is requesting specific documentation for:
- The original purchase of the property
- Rebuild or renovations
- Proof that you lived in the rebuilt/renovated house
- Sale of the property.
In addition to documentation, several questions are meant to ascertain your intention when purchasing or selling the property, which is key to determining the appropriate tax treatment of the sale.
So, what are they really after?
CRA is looking to determine if you correctly reported the property’s sale, adequately calculated the income or capital gain on the sale, and appropriately filed information returns or HST rebate applications when applicable. CRA may take a position and reassess to:
- Reclassify taxable capital gains into regular income
- Deny the principal residence exemption
- Deny the HST rebate
- Attribute income to other individuals
- Apply interest and penalties
- Apply additional gross negligence penalties
- Any, some, or all of the above.
1. The CRA is looking at real estate transactions more carefully than ever before.
2. Get professional tax advice before you purchase or sell real estate.
3. Good documentation is critical to support the tax position you take. Carefully document and maintain supporting evidence for:
- the purchase, renovation, and sale of your property
- when you moved and for how long you lived in your home, including Canada Post change-of-address notice, utility bills, OHIP and driver’s licenses changed to your new address, and other supporting evidence
- building/demolition permit application, construction contracts, and other supporting evidence for a home rebuild or renovation
4. Most importantly, if you get a CRA questionnaire, contact your Sloan Partners LLP advisor as soon as possible. We will offer guidance and advise you throughout any CRA audit or review.
Good advice is the key to a good tax result. Before you buy or sell real estate, speak to your tax team at Sloan Partners LLP.
Roman Belenky CPA, CGA is a tax specialist at Sloan Partners LLP focusing in tax planning and advisory for business owners and their families. You can reach Roman at firstname.lastname@example.org
Disclaimer: This article is intended for educational and informational purposes only. It is not intended in any way whatsoever to provide tax advice. The reader should be aware that legislation and administrative policy are subject to change at any time. None of the persons involved in the preparation of this article accepts any responsibility for its contents or the consequences that arise from its use.