Dealing with CRA on Residential Resale GST|HST Audits

Posted on June 2nd, 2017

Matt Beck of Grant Thornton, the author of this paper, is the accountant that Royal Pacific used in our recent GST audit, that we won. If anyone has clients that are being questioned about the applicability of GST exemptions for a new home purchase, they can call upon Matt.

Andrew Peck, BComm, CIPS, CRB, ABR
Broker Owner, Royal Pacific Realty Group
President, The Canadian Real Estate Association

CRA’s audit approach and assessments are likely in error
For years, the heated Vancouver real estate market has made news headlines, typically demanding governments do something about the “affordability crisis” in Vancouver.

Recently, there has been increasing pressure on Canada Revenue Agency (“CRA”) to crack down on homeowners who the news media perceives to be not paying their fair share of taxes, particularly among Buyers and Sellers in the luxury or high-end residential property market.

CRA monitors real estate sales transactions that are registered at provincial Land Titles Offices. Recently, CRA has stepped up its enforcement of residential resale transactions by assessing GST/HST rather aggressively, often making its own false assumptions about the facts as well as the taxpayers’ intentions and motives to live in versus to resell the home. Citing rules about taxpayers’ requirements to report all sales in a GST/HST return, CRA may be ignoring time limits and trying to assess residential sales from as far back as 10 years or more.

The “at risk” transactions are particularly prevalent in BC but are also emerging more recently in Ontario’s Greater Toronto area, after the calming effect of the 15% additional Property Transfer Tax on non-residents seemed to shift Buyers’ attentions further eastward.

CPA Canada recently released a memo entitled “Protect your clients from CRA issues with real estate – HST/GST”, confirming that “[CRA] is getting tougher on HST/GST non-compliance in real estate”, in particular, with respect to the sale and resale of new or substantially renovated homes. CPA Canada reports that, “in Ontario alone, the CRA went after 12,866 suspected false claims last year and collected a staggering $168.5 million from homeowners”.

In our experience, Grant Thornton’s South Coastal BC Sales Tax Group often discovers that it is more likely CRA’s audit approach and its GST/HST proposed assessments that are in error.

We have developed a comprehensive understanding of GST/HST issues for the real estate sector and we are uniquely qualified to assist your clients to deal with CRA’s auditors. Better yet, call us ahead of time to discuss your clients’ scenarios so that we may advise on strategy to achieve your clients’ investment goals while minimizing their overall tax cost and audit assessment risk.

As Specialists in the Real Estate Sector, our involvement to prepare your clients in advance or to deal with CRA during an audit could prove to be very helpful.

Matt Beck CPA, CGA
Senior Manager
1 604 443 2107

Paul Bekenn CPA, CGA
Senior Manager
1 604 697 7928

Carl Beck CPA, CMA
Senior Consultant
T: 1 604 596 0095

Please consult Grant Thornton’s Sales Tax Advisors for more information.