Research conducted for the Canada Revenue Agency (CRA) suggests that various forms of tax evasion are commonplace in the country’s most expensive real estate markets.
“Those working in larger markets such as the Greater Toronto and Greater Vancouver areas felt many in their communities were engaging in acts of non-compliance.”
The report, “Perceptions of Tax Obligations and Related Non-Compliance in the Real Estate Sector,” was produced for the CRA by the Strategic Counsel using focus groups and in-depth interviews with taxpayers and real estate professionals.
The May 2023 report points to larger businesses as well, namely developers and contractors, who are alleged to engage in tax evasion when building or flipping homes. Tax non-compliant individuals were often found to report incomes not commensurate with their lifestyles, underreport capital gains on property sales and GST on substantially renovated or new homes, omit mention of income from other countries, and underreport tax rebates available to builders or purchasers.
The Minister of National Revenue was mandated to strengthen the agency’s capacity to audit real estate transactions, according to the report.
In Toronto and Vancouver, average home prices last month increased to $1,082,496 and $1,208,400, respectively. The report said that surging prices, transaction volumes, and investor participation, are the leading reasons for tax non-compliance.
Rising inflation is also cited as a reason for tax evasion.
“It was felt that in recent years a growing number of Canadians had begun engaging in intentional non-compliance due to increasing financial pressures resulting from inflation and the rising cost of living,” said the report.
“There was a belief non-compliance in real estate is prevalent throughout Canada and is likely more widespread than many are aware of.”
The report gathered information from 12 focus groups across Canada, and individuals working in the industry, including the property management and renovations sectors.
Where tax evasion is confirmed, the agency penalizes the guilty parties with a fine equal to 50 percent of the additional tax payable. From April 2015 to March 2022, the CRA applied 3,041 penalties, totalling $298.9 million.