Attention! Overseas Real Estate Investments in Canada Face Intense Scrutiny by CRA, with Severe Consequences
Overseas real estate investments have long been considered a viable channel for asset preservation and appreciation, serving as a reasonable financial path for the Chinese community. Recently, CRA has intensified its crackdown on property speculation, leading to potential repercussions that should not be underestimated.
To enhance the tracking of tax evasion, the federal government has allocated $50 million from the budget to support CRA in utilizing third-party data and promptly identifying instances of tax evasion in real estate transactions.
Those who have purchased properties and never occupied them or swiftly vacated them are likely already under the radar of CRA!
According to regulations, Canadian residents selling properties must report to the Canada Revenue Agency (CRA), including transaction records, purchase dates, sale prices, and property descriptions. All profits from property speculation are fully subject to taxable income.
Recently, a taxpayer, A, in Toronto suffered significant setbacks due to a lack of clarity regarding this regulation when filing taxes from property sales.
A is typically involved in transportation work and, in 1999, jointly purchased a townhouse in Ontario’s prosperous city with his brother. They split the down payment, daily expenses, and monthly mortgage equally.
In April 2007, due to his brother’s marriage, A arranged for his wife to move into the townhouse. The following year, they had a child, and with space becoming increasingly cramped, A considered the idea of moving out of this house to a smaller one closer to his workplace.
Consequently, A bought a presale condominium, which was delivered two years later than scheduled.
During this time, things took an unexpected turn. Their parents, who spent half the year in Jamaica, had their mother move into the townhouse after their father passed away in Jamaica in December 2008. A’s brother, his wife, and child occupied the master bedroom, while A and his mother lived in the other two bedrooms.
As the house became more crowded, A made the decision to split the family assets equally with his brother and buy out the remaining shares of the property, with his brother finding a new place to live. After the condominium was officially delivered in August 2010, A listed the house for sale and made a profit of $13,412.
However, A mistakenly misreported the content on his tax return, leading to substantial fines. In the 2010 tax return, he did not classify the $13,000 income as capital gains and only reported 50% of it.
CRA targeted A’s actions, considering it as property speculation, and insisted that the $13,000 should be fully taxable. Consequently, A had to bear the penalties for misreporting!
Although A explained to the court that selling the condominium was not property speculation but a consideration of the family’s housing situation, the CRA’s ruling persisted.
A, dissatisfied with CRA’s decision, engaged in a lengthy legal battle, eventually winning the case with the court declaring CRA’s ruling incorrect and canceling the fine. Despite the victory, A’s essential matters were delayed. Therefore, it is advised that Chinese individuals selling properties in Canada must accurately report their taxes! CRA will thoroughly investigate old cases!