In recent few months, major news medias warned the public about upcoming CRA (Canada Revenue Agency) condo tax audits. Financial Posts and The Toronto Star published that the Canada Revenue Agency is undergoing tax audits of condo sales to check for non compliance with the Income Tax Act.
The focus of the audit is to determine whether the profit from your condo sale is treated as “capital gains” (where only 50% is taxable) or as “income” (where 100% of the gain is taxable). The CRA is particularly concerned with “assignment” transactions where the person buys a pre-construction condo but subsequently sales the right to buy the condo before its final closing. In the past, builders are not required to disclose the names of the original purchaser but under new CRA rules they may have to disclose them.
People who have assigned multiple properties over the year or even the last few years will have difficulty persuading the CRA that these transactions should be treated as capital gains rather than income.
CRA is also going after people who take possession of the condo unit but sale it shortly after the date of closing, typically shorter than year and a half. Planning and preparation plays a key role in protecting yourself. Most taxpayers have no ideas how to prepare the needed documentation to gain advantage in winning the battle.
If the CRA believes that the transaction is to be reported as income rather than capital gains, the resulting financial consequence can be very costly. For example, if your gain is $100,000 and CRA deems that this is to be classified as “income” then you must include the entire $100,000 as taxable income in the year of the sale. If it is capital gains then only $50,000 is taxable.
In addition, CRA will also charge you interest on the taxes that you owe after a reassessment. For people who did not report the transaction all together, may face hefty gross negligence penalties because of it.
The taxpayer will need to act quickly in gathering evidence and formulating a defence in time to respond to the audit proposal letter.
It happened in the past that taxpayers, out of innocence, had casual conversation with CRA auditor and got irreversible damage out of it. Because the goal of tax auditors, even if the nicest ones, is to get biggest tax revenue possible from you. Then everything you disclosure can be used against you.
It is very important that as soon as you receive CRA audit letter, treat it as high alert and immediately, see professional protection before it is too late. Contact us at 1-877-918-2991 or email Help@Tax911Now.ca or fill out the Contact Form to the top left right away if you are facing serious audit risks.