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 the 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.