changes to cra tax rules 2017

3 Canada Revenue Agency (CRA) Initiatives That Could Affect YOU!

changes to cra tax rules 2017

Last month I was at a two-day intensive tax course.  While not considered exciting by most, I can say there was a lot of interesting information being shared by the presenters and the attendees. The CRA has been busy trying to collect the data and the tax dollars of those that are either trying to avoid the required reporting and remitting, or are ignorant of their responsibilities.

Here are 3 Initiatives, Results or Ongoing Actions:

1. Sale or Transfer of Real Estate

Between April 2015 and March 2017 the CRA reviewed 21,000 transactions (files) related to the sale or transfer of real estate.  As a result they assessed over $329 million in previously unreported income.  They also applied over $17 million in penalties.  They’re looking at rental properties being sold as principle residences, potential house flipping, properties being sold with revenue reported as capital gains when it should be reported as income, etc. As I discussed in a previous blog the reporting of the sale of your personal residence now must be included when filing your personal tax return.  The CRA has indicated that this will be an ongoing requirement, and they will continue to enhance their compliance procedures.  From the CRA Release dated June 16, 2017 “The CRA will continue to strengthen relationships with key partners such as provinces, territories, and municipalities to further expand, obtain, and exchange information on real estate transactions, thereby enhancing the CRA’s ability to combat tax evasion and avoidance.”

2. Sharing Economy

In a March 2017 Tax Tip the CRA gave us a heads-up that it is co-operating with the industries, the provinces, and the territories to identify and address areas where the tax system and compliance might be affected in the Sharing Economy. If you’re involved in the Sharing Economy you better know your tax obligations. The sharing economy includes;

  • Accommodation sharing – an example being Airbnb. Income earned by renting out your home through Airbnb must be declared on your income tax return. Depending on the services you provide it is either rental income or business income.  If you’re an Airbnb host you know the detailed documentation you and your guest receive.  The CRA also has access to that information.
  • Ride sharing – Uber and Lyft are examples of the major ride share resources. And if you ever hear about any of the companies being audited by the CRA, don’t worry about them. The CRA is actually looking for the individual higher revenue earners and the audit will have a trickle-down effect.
  • Music and video streaming
  • Online staffing
  • Peer/crowd funding

Besides reporting the income you also need to be aware of the GST/HST obligations on all of the above.  Generally, if you earn income from the above services or supplies of less than $30,000 in a 12 month period, you do not have to register for a GST/HST number. Be aware that this is based on revenue, not profit.

3. Cracking Down on Tax Cheats

The purpose of a CRA news release June 1, 2017 is to update Canadians on the government’s progress to crack down on tax cheats. Here are a few of their initiatives to capture more than $13 billion-worth of taxes owed in the past fiscal year;

  • Establishing specialized collection teams and adding technical and legal expertise to its audit and investigative teams
  • Improving processes to better use external data for the identification of high risk taxpayers
  • Increasing collaboration and information sharing with international partners

And as a positive;

  • Striving for early resolution of audit issues in a fair and consistent manner
  • Reviewing and modernizing existing programs, such as the Voluntary Disclosure Program, through consultation with experts and Canadians.

As you can see from the above it doesn’t matter whether you are; single, in a relationship, employed or self-employed, in a business partnership or major shareholder in a corporation you may receive a request for information from the CRA.  It can come in the form of “the brown envelope”, email or telephone call.

DO NOT IGNORE responding to the CRA.  If you’re not comfortable in communicating with them have a representative act on your behalf. If you’re unsure of your responsibilities speak with a tax professional. Death and taxes – CRA will not go away.

You can connect with me by clicking the contact tab at the bottom of the screen if you are reading this post on the website. Or you can leave your information in the form of a comment right here on the site.

Until next time,

Maureen

 

Principle Residence Exemption – Reporting of Sale to CRA

Sold Home For Sale Sign in Front of New House

Last week Finance Minister Bill Morneau announced a number of changes in an effort to limit foreign money into Canadian real estate and ensure borrowers can afford the mortgages they want to take on.  One of these includes reporting the sale of residences to the CRA and including any capital gains.

The 3 most discussed changes are:

  • Effective October 17, 2016 there is a stress test used for approving high-ratio mortgages, that will be applied to all new insured mortgages
  • Effective November 30, 2016 new restrictions will be imposed in providing insurance for low-ratio mortgages
  • The launch of consultations regarding lender risk sharing

But I think the 4th item, also effective in 2016, is what everyone selling a home in Canada should be aware of:

  • Previously when selling your principal residence any financial gain was tax-free and it was not necessary to report the income on the sale. Now, the capital gains tax is still waived, but the sale of the primary residence must be reported to the CRA when filing your personal tax return.

You will need to supply to CRA:

  • Date of purchase
  • Proceeds of disposition
  • Description of the property

Why the changes?

  • Ottawa is responding to extensive media reports indicating foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption
  • Ensures families only claim an exemption on one home a year, and the home owners must live in the property
  • Certifies that if an individual was not a resident of Canada in the year they purchased the residence, and they disposed of that property after October 2, 2016, they are not eligible to claim the exemption for that year

This is also a fact and history-gathering move for Ottawa.  Did you sell a cottage during one of the years, and not pay tax on the capital gains, while you were claiming another address as your principle residence? It could be also be a way flagging a possible “lifestyle audit”.

Do you think this change will curtail foreign investment, or homeowners trying to claim more than one property as a personal residence? Or do you have other concerns regarding this change? I’m interested in hearing your thoughts.

You can  connect with me by clicking the contact tab at the bottom of the screen if you are reading this post on the website or you can leave your information in the form of a comment right here on the site.

Until next time,

Maureen

CRA (Canada Revenue Agency) – Requests and Expectations

bookkeeping services Newmarket

When do requests from the CRA become demands, and what are our expectations when we do everything possible to comply?

Yesterday I met with Bob (not his real name) regarding a request to complete a statement of Financial Position. The CRA uses the completion of this form to determine what you can or should pay, versus what you say you can afford. Bob owes almost $100,000 to CRA for HST and personal tax. Read more