General CRA activity
Over the last few years, CRA has focused on purchases and sales within the real estate sector. They are reviewing transactions for several items, such as:
- property flips on account of income;
- ineligible principal residence claims;
- commissions on sales;
- pre-sale condo assignments; and
- eligibility for the GST/HST new housing and rental rebates.
One method for reviewing such transactions is by requiring taxpayers to respond to a detailed questionnaire. The questionnaire covers items such as:
- date and details of purchase and sale in sale agreements, statements of adjustments, and mortgage/financial documentation;
- details of any major renovations, building permits, construction contracts, and municipal approvals;
- estimates of fair market values at different key points (such as after the completion of a renovation);
- real estate listing agreements; and
- invoices, receipts, bank statements, driver’s licence, and other items which indicates the address of the property.
The purchaser’s intention for the use of the property is key in determining the appropriate tax treatment upon sale.
U.S. Real Estate
On June 25, 2020, CRA issued a solicitation for engaging one or more third-party suppliers to provide “U.S. real estate and real property data where a Canadian resident is the owner or party to the purchase, sale or transfer” back to, at a minimum, January 1, 2014 with ongoing provision of new data on a monthly basis.
CRA may consider reviewing several issues in this context, including:
- missed disclosure of real estate not exclusively held for personal use;
- unreported rental income, whether not reported at all or not reported accurately;
- unreported real estate sales; and
- inappropriate claims for the principal residence exemption on such dispositions.
ACTION ITEM: Even a fully exempt principal residence sale was required to be reported for 2016 and later years. Where disposals of real estate in 2016 or subsequent years are not reported, CRA can reassess for an unlimited period. Ensure all disposals, in Canada and abroad, are reported on the tax return.