We, at In-TAX-icating Tax services, came across an article this morning in the Toronto Star newspaper entitled; “Tax Auditors Target Condo Sellers in Hunt for Flippers“, and immediately read through looking for something new or developing in the Canada Revenue Agency (CRA) battle to tax those who should be taxed on taxable transactions.
But there was nothing new here. While the article does, however, get a very important message across in a somewhat alarming and shocking manner probably meant to draw the attention of those who have no interest in taxation – the truth speaks for itself.
Capital Gains tax or proof, please.
CRA auditors have always been looking at condo sellers and house sellers to determine who are flipping these properties for profit, If they are, then they have to pay a capital gains tax on the profit they make during the flip. If they hide it and are found out, then they have to pay the capital gains tax on the flip, plus they get required to pay a penalty plus interest.
For those of you who are unaware of what the article said, it essentially outlined that there are citizens who were not aware that if they buy a property and sell it within 6 months, or if they buy it but never move into it and sell it. they are liable to be taxed by the CRA, in what a Toronto tax lawyer referred to as “abusive audit practices” by the CRA.
The article seems to focus on the fact that the CRA audit group are reviewing condo sales in the two hottest markets – Toronto and Vancouver – for instances where a flip was evident and in doing so are trying to find the truth. To do that, the CRA follows their usual practices which means some people get phone calls, some get letters, some legal warning letters and some just get assessed. In the Canadian tax system, the burden of proof is on the taxpayer, so in this case they would have to prove (or explain) why they should not be subjected to a capital gains tax when all evidence points to it being owed.
At issue here is that there are some people who were forced to sell within that 6-month window due to circumstances beyond their control and they have bee hit with a massive tax bill – or in the most recent case I successfully defended, a letter from the CRA real estate audit group indicating that the CRA would assess unless other information was provided.
From the article, even the Toronto Real Estate Board (TREB) stated; “the rules are generally clear on the amount of time one has to occupy a unit (as a principal residence) to benefit from a capital gains exemption.”
So what is the problem?
According to this article, the law does not stipulate a specific amount of time so people have been receiving assessments “for at least 50 per cent of any gains made if they’ve sold before living in the property 18 months to two years.” An assessment like that, I would certainly challenge!
The CRA, however, through their spokesman Sam Papadopoulos, said; “We’ve just been a little more aggressive in sending out questionnaires.”
In addition to keeping an eye on capital gains, the CRA also are seeing an increase in GST/HST housing rebates being claimed, so if a letter is sent your way regarding missing information, it is advisable to provide the information to the CRA, or seek professional help, such as the Tax professionals at Intaxicating Tax Services to make sure the CRA is comfortable with the information provided and that your interests are represented throughout the discussions.
While I would not agree that this is a “full frontal attack on everybody out there who has bought and sold a property”, I would recommend anyone who received a questionnaire or an assessment notice from the CRA but do not fall in the 6-month window, or who were required to sell for reasons beyond their control, to contact us, because we can help.
Recently, we helped out a former Live-in caregiver who came to Canada almost 20 years ago, and worked 2 jobs to buy her dream home. She purchased a condo which was scheduled to be built in 15 months, and when her floor was ready, she moved in. When tragedy struck her family back home, she was required to sell the condo and send home money to help her family.
To add insult to injury, the CRA sent her a bill for $45,000.
She had no idea such a tax existed and was an emotional wreck at the time we met.
After 2 weeks of discussions and negotiations with the CRA auditor (some of which surrounded our clients actual ability to pay for a condo based on her income of $350/yr – the auditor was reading the educational expenses, not the income field) our client received a letter from the CRA stating that the CRA would not be raising the assessment.
So no matter what tips or tricks, or techniques the CRA utilizes, the approach is consistent; If you have the facts, and you can support them, then do so. If the CRA disputes your facts, then you can file an objection and you can present your case to an appeals officer.
If you have questions, or don’t know something, then ask.
In-TAX-icating Tax Services. Contact us today for a free consultation, or to help you resolve your tax problem(s) once and for all.
In-TAX-icating Tax Services is a full-service boutique tax firm run by actual former CRA staff who over a combined 22 years have learned, applied and taught other CRA staff about the ins and outs of the CRA’s collection and enforcement divisions.
Who better to trust that the people who trained the CRA on how to do their jobs!
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