Canada Revenue Agency has unearthed over $1 billion in unpaid tax revenue from audits of B.C. real estate transactions since 2015.
The real estate non-compliance tax audit program for B.C. added $234.4 million to its total assessments during the 2021-2022 fiscal year to March 31. Since launching in 2015, the auditors have now completed 11,985 audit assessments totalling $1,137,500,000 in B.C.
The program also targets transactions in Ontario, where the Canada Revenue Agency (CRA) has completed 53,636 audit assessments totalling $1,142,700,000.
Auditors are looking at two key areas: Unreported income and capital gain taxes and unreported GST/HST on the sale of new or renovated homes or ineligible GST/HST rebates.
For income and capital gain taxes, auditors look at several matters, such as whether the income reported on tax returns is sufficient to support a taxpayer’s lifestyle, including the cost and maintenance of real estate.
And so, in B.C., many multi-million-dollar detached home neighbourhoods have poverty-level incomes reported, thus raising the potential for tax evasion or avoidance.
“The acquisition of expensive assets, such as a high-end home, without an obvious income source, can be an indicator of potential unreported income on income tax returns,” states the CRA.
Auditors are also looking at people engaged in property flipping and whether such profits should be reported as business income or as a capital gain. And, auditors are also looking at unreported worldwide income in cases where, for example, a person is declaring primary residency for capital gain exemptions but also not declaring worldwide income, as would be required by a Canadian resident claiming such an exemption.
In B.C., income tax assessments are the most substantial of all. Of the roughly $234 million in assessments from last year's audits, $179.1 million falls into the income tax category, whereas $54 million is from unreported GST/HST, and just $1.3 million is from ineligible GST/HST rebates for new and rental housing.
The program found $426.3 million in unreported taxes in B.C. and Ontario combined last year.
Reassessments can occur due to human error, tax avoidance measures and tax evasion. When it comes to tax evasion, the CRA will apply a penalty equal to 50% of the additional tax payable if a taxpayer knowingly makes a false statement when filing a return. About $67 million in penalties were assessed last year in total. About one-third of last year’s assessments (about $134 million of the $426.3 million) was from audits where tax evasion was determined — although not necessarily proven, should a person appeal in court.
The program hit a snag during the early stages of the pandemic, realizing just $174 million of reassessments from 976 audits in B.C. from March 2020 to March 2021.
And last year’s audits in B.C. were still down from 2019-2020 when auditors submitted a record $306.5 million worth of assessments from 2,044 audits.
Last year, auditors realized $114,440 per file, whereas auditors had sharper pencils when they were working during the pandemic, hauling in $178,278 on each (2020-2021) assessment.
Simply because the CRA has made an assessment does not mean it has collected the money. Last year, the CRA told Glacier Media there is no data on how much of the audit program assessments have been collected in Ontario and B.C. However, it noted a Parliamentary Budget Office recovery estimate of 81.3%, following objections and appeals.
There is an outstanding $3 million tax evasion case in Vancouver, which the CRA announced in December 2019; however, the court files are protected by a ban, and the agency will not provide an update.
The audit program information is found online.