Wood homes under construction

The federal government will propose funding for the Canada Revenue Agency (CRA) in the 2024 budget to combat tax non-compliance in the housing sector.

The proposal was included in Ottawa’s plan to tackle the housing affordability crisis in Canada, released Friday.

“Cracking down on real estate tax fraud protects home buyers by making the housing market healthier, more competitive, and stable,” the plan said. By strengthening its compliance efforts, the “government is protecting first-time home buyers from artificial market distortions that increase home prices.”

The plan did not include the funding amount or indicate whether the funding would represent new dollars for the agency.

Through audits, the CRA identified $426 million in additional tax and penalties related to real estate transactions in Ontario and British Columbia during the 2022–2023 fiscal year. David Rotfleisch, tax lawyer with Rotfleisch & Samulovitch Professional Corp. in Toronto, said house flipping and the GST/HST new housing rebate have been among the CRA’s recent audit interests.

“Certainly, in Ontario, they seem to be focused a lot on the new housing [rebate],” Rotfleisch said.

Rotfleisch took issue with the government’s use of the term “fraud” in its housing plan announcement, saying the word was “designed to create an impact” but that it was inappropriate for describing legitimate disputes between taxpayers and the CRA.

“If somebody renovates [a property], sells it, makes a profit and doesn’t declare the income, of course, that’s fraud,” Rotfleisch said. “But if somebody claims the [GST/HST] new home tax [rebate] and the CRA says they’re not entitled to it, that’s in all likelihood not going to be fraud.”

Rotfleisch suggested that taxpayers who want to protect against a possible audit should seek professional advice. If a lawyer provides an opinion that a real estate transaction is on side, a client’s risk is mitigated.

“Get a memo in a file,” he said. “Once you have that, there’s almost no chance of [CRA successfully applying] gross negligence penalties and you’re going to know what the recommended [tax] treatment is [for the real estate transaction].”

In 2019, Ottawa provided the CRA with an additional $50 million over five years to create a real-estate task force, plus $10 million annually on an ongoing basis.

Other key measures in housing plan

The government said it intends to consult with the mortgage industry on making a tool available through the CRA to verify borrower income for mortgages as part of an effort to combat mortgage fraud.

Ottawa also said it plans to restrict the purchase and acquisition of existing single-family homes by “very large, corporate investors” as part of its effort to “confront the financialization of housing.” The government will consult over the coming months and provide further details in the 2024 fall economic statement.

Other parts of the Liberals’ 28-page plan include expanded tax incentives for homebuilding, more money to tackle homelessness, and $250 million to help communities end encampments and transition people into housing.

“It’s a plan to build housing, including for renters, on a scale not seen in generations. We’re talking about almost 3.9 million homes by 2031,” Prime Minister Justin Trudeau said in Vaughan, Ont. on Friday.

The parliamentary budget officer released a report Thursday that estimates Canada would need to build 3.1 million homes by 2030 to close the housing gap.

The plan is the minority government’s latest effort to set the agenda on affordability as it loses significant ground to the Conservatives over cost-of-living issues.

With files from The Canadian Press