Those still having a hard time emotionally and financially getting past the oil crash of recent may have something else to invest in. The housing market across Canada is on a swift and relentless incline, which is making both native and foreign investors try to get in while the iron is hot.
The problem is, that like everything, what goes up must come down and when a market is getting flooded there is always a correction on the horizon. Could the same be true for the Canadian housing market? The recent boom activity within housing and construction is making the CRA take note and forcing them to put more scrutiny on what is going on in Canada nationwide.
The CRA is beginning to crack down on the hot housing market by spotting those who are noncompliant with their taxes or trying to cheat the system. Seeing a red-hot market in residential building and sales in both Vancouver and Toronto, the CRA is taking a harder look to ensure that everyone is paying their fair share and operating on the up and up.
The constraints they are subjecting those in the housing, Storage units and construction industry to are looking over transactions, initiating audits of financials, and monitoring real estate transactions, with a fine toothed comb.
Ending March 31 of this year, the CRA reportedly audited as many as 1,864 Ontario files in the real estate industry that came with over $18 million dollars in income tax. Of those audits, over 339 files were found to have discrepancies that led to over $4 million dollars in additional revenue that would have been lost if no one was at the wheel overseeing the “fancy” math that many flippers and investors have been engaging in. Along with the unpaid monies owed, there have been an additional $10 million in penalties across Canada.
The CRA has released a statement concerning the widespread of non-compliance, forewarning that they will be using such tools as analytics, third party data, and risk assessment tools, that have found inconsistencies in accounting. Surmountable to tax evasion, the CRA has gone to work fervently to find those they believe are at the highest risk for fraud or noncompliance.
The key indicators that they are looking for are:
Source of funding
The first identifier that the CRA is targeting is taxpayers who buy property with funds that were not taxed properly, which includes both native Canadians and foreign investors looking to cash in on a red-hot market. Since they realize that money doesn’t just “materialize” from nowhere, tracking down sources to ensure that taxes were paid, is part of the scheme to catch those who are operating outside the financial laws.
Buying residential buildings to fix up and sell, or “flippers,” has become a very popular and lucrative business for those who know how to budget and have the capital to buy homes with no or little money down. Cracking down on those who are claiming to be residential home buyers, redo a home and sell it within the proper time frame to cash in, are being held to higher scrutiny to pay capital gains taxes, which they don’t have to pay if it is a legitimate renovation for residential living.
Flipping is not an illegal practice, but tricking the system by pretending to be a residential homeowner simply fixing up an old home and selling it without ever paying taxes on the capital gains, is. Those are the investors that the CRA is trying to take a harder look at.
Third party data is the way that the CRA are better identifying which properties are being flipped and where there is a trend by buyers who aren’t looking for their own renovation, rather use the home as a business transaction.
Capital gains not being paid
If you sell your home, and you make money on it, there is no crime. As the housing industry continues to increase, obviously many homeowners are enjoying more equity in their homes when they decide to sell, and they do so at a profit. Generally, when you live in a home and sell it at a later time for a profit, there are no capital gains taxes, because it is just part of market fluctuations. If, however, your entire reason for buying and selling is to make a profit and you are not reporting it, that is a crime. These are the type of transactions that the CRA is trying to monitor better.
Everyone is trying to get in on the hot ride that the housing market is providing to people in the Toronto and Vancouver area, but cheating the CRA is never a good idea. To gain control over those who are bending the rules, the CRA is investing both time and measures to find those who are noncompliant in the housing industry.