The taxation of real estate in BC, and specifically unreported
income, has become a high profile issue as a result of several
different stories published in the media. The public scrutiny has
been part of the impetus in CRA's announcement of more audit
resources being committed to tax audits of the BC real estate
market. There is a perception that house and condo renovation and
flipping has been taking place and that the profits from those
sales are not being reported. This unreported income can be based on improper
claims of the principal residence exemption. There may also be
cases of business income from a renovation business being
improperly claimed as capital gains. Our senior Vancouver tax
lawyers have represented clients in the situation where a CRA
auditor has improperly assessed them as having incurred business
income instead of a capital gain. However the question of capital
gains versus business income is technical and can often be
difficult to determine.
What is clear is that there are Canadian taxpayers who have
unreported income from a real estate transaction. A simple purchase
of a condo from plans and a subsequent sale at a profit has to be
reported to CRA. Failure to do so is tax evasion and can result in
tax penalties and possible jail time.
As part of the CRA audit the tax auditors will be conducting
lifestyle audits. This means that they will examine lifestyle such
as expensive homes or assets or activities posted on social media
such as facebook, and compare the lifestyle to income reported on
tax returns. A discrepancy in the nature of low income and
expensive assets or lifestyle will likely trigger a net worth
assessment , a form of indirect audit verification technique. If
net worth assessment shows a large amount of unreported income
CRA will often look at commencing tax fraud prosecution for
unreported income. If CRA has threatened you with tax evasion
charges you need to retain our top Vancouver tax lawyers before
they execute a search warrant at your home and business and seize
your computers and physical records.
If you have undeclared income from real estate transactions, or
from any other source, you can avoid tax evasion prosecution and
tax penalties, but submitting a CRA
voluntary disclosure (VDP or tax amnesty) before CRA approaches
you. Our Vancouver tax lawyers submit voluntary disclosure (VDP)
applications for Canadian taxpayers with unreported income or
unfiled tax returns several times a week. The key is that the
voluntary disclosure (VDP) application must be submitted to CRA
before CRA commences an enforcement action. The term enforcement
action includes an audit or investigation but may also involve an
audit of and employer or a related corporation. Since our
experienced Vancouver tax lawyers deal with voluntary disclosure
(VDP) applications all of the time we can advise you if an
application should be submitted, or if a no-names voluntary
disclosure (VDP) application is a safer way to proceed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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