Is the taxman coming to Richmond?
Leaked documents attributed to the Canada Revenue Agency (CRA) released Wednesday by the South China Morning Post (SCMP) indicate a bolstered campaign targeting tax cheats in the real estate market.
The documents, at SCMP.com, indicate the CRA will be targeting “individuals living in high-valued areas in B.C. who are reporting minimal income not supporting their lifestyle.”
Notably, the documents do not specifically mention Richmond, but, rather, note “significant media attention regarding the housing market in the Vancouver area and the effects of foreign investment on the availability of affordable housing,” as an issue, and that the CRA will be assigning 50 new full-time income tax auditors and 20 GST auditors to B.C.
The documents indicate the CRA will also target “individuals who are not reporting all of their worldwide income.”
Richmond’s Thompson and Terra Nova neighbourhoods have some of the highest valued homes in Richmond, while — according to census data reported by the Vancouver Sun — concurrently averaging some of the lowest self-reported incomes in the city, bordering on levels of poverty. New homes in the area sell for about $4 million.
Residents of Canada must pay income tax on worldwide income. If a home is occupied by a spouse or even just a child (dependents), then that home is considered a principal residence, and the homeowner is therefore a resident for tax purposes.
But it is believed, by the CRA, that some people are working abroad, not declaring income, but still declaring residency to reap the benefits of untaxed capital gains on properties, as well as social security benefits.
One page indicates an example of what sort of person the CRA may be targeting: An owner of a $5.8 million home who has claimed the Working Income Tax Benefit.
CRA spokesperson Heidi Hofstad told the News the new auditors will focus on numerous risk factors related to real estate.
"The CRA does not have any role to play concerning the affordability of real estate. However . . . the CRA regularly monitors areas of emerging compliance risk. Transactions in the Greater Toronto Area have been the subject of greater scrutiny for a number of years. More recently, the CRA has been actively monitoring and auditing real estate transactions in British Columbia,`said Hofstad.
The documents indicate the CRA will also target high-end property flips, “where the individual may have claimed a principal residence exemption."
Homebuilders may also fall under the increasingly watchful eye of the taxman, as those “who flip property on a frequent basis and do not report the corresponding business income or capital gain” may be targeted. Unreported assignment sales will also be sought.
SCMP reporter Ian Young reported that he spoke to the CRA source, who told him the materials were leaked because, “like many people, I’m pretty disgusted by what’s happening here [in the Vancouver real estate market], and a lack of enforcement has been part of the problem.”
The source went on to say that, even with 50 new auditors, they may not be able to make significant in-roads on the problem.
Young wrote that the source suggested CRA bureaucrats previously feared being labelled racist “because the vast majority of these cases, involving high real estate values, involve mainland Chinese.”
In 2015, the CRA conducted 339 B.C. real estate-related audits, recovering $14 million.