CRA Looking into Bulk US Real Estate Data to Track Transactions by Canadians
If you own US real estate or earn income from real estate in the United States, you may be required to disclose this information. The CRA is looking for those who do not comply. The Voluntary Disclosure Program (VDP) may help you.
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The Canada Revenue Agency Wants to Ensure Tax Compliance by Searching Publicly-Available United States Property Records
Canadians who own real estate in the United States can be required to disclose their US holdings or transactions on their Canadian income taxes for several reasons. Now the Canada Revenue Agency (CRA) may be using publicly-available United States property records to make sure Canadians are complying.
A Request for Information (RFI) titled “Bulk United States (US) Real Property Data (re Canadian Residents)” was posted online at the end of June. In this RFI, the CRA stated that it was searching for a provider that could supply the agency with United States property data. Specifically, the agency is looking for “U.S. real estate and real property data where a Canadian resident is the owner or party to the purchase, sale, or transfer. Real estate and property data is required in bulk form in order to identify current and historical records, mortgage transactions, property taxes, real property records, and deeds.”
The RFI also showed that the CRA would be reviewing six years of US real estate transactions to find potential non-compliance by Canadians.
”The CRA and IRS already have an information-sharing agreement in place to allow the CRA to zero-in on potential unreported rental income or holding of US property by Canadian tax residents,” says Boris Stanislav, Tax Lawyer at Farber Tax Law. “This request seems to enhance CRA’s ability to be more effective with its enforcement action.”
For this reason, it’s very important that Canadians who own United States real estate, either for investment purposes or personal use, ensure that they are fully compliant with their Canadian tax obligations.
Those who are not compliant could receive a reassessment from the CRA. This could potentially result in significant taxes owing as well as large interest and penalty charges. If the agency believes that a person willfully or purposely failed to disclose information to avoid paying taxes, the possibility of prosecution for tax evasion or tax fraud exists. These are serious charges that could result in large fines, a criminal record, and possibly even potential prison time.
When United States Real Estate Must be Disclosed on Canadian Taxes
Canadians who own real estate in the United States can be required to disclose data relating to their holdings, transactions, and earnings for several reasons. These reasons include:
- Unreported United States Real Estate Sales
- If you own real estate in the United States and you sell this property, you are required to report any capital gain on your Canadian income taxes.
- However, foreign tax credits are generally available for any US capital gains tax paid so that you are not taxed twice.
- Interest rates between the currencies of the two nations could result in taxes owing, despite tax credits existing. For example, if the exchange rate between the two countries changed significantly from when you purchased the property to when you sold the property, you could experience a capital gain in Canadian dollars that would not come with an offsetting foreign tax credit.
- Unreported Foreign Income
- If you earn rental income on a US property, you are required to disclose this income on your Canadian income taxes as a foreign income. As with real estate sales (listed above) there is usually a foreign tax credit available in these situations so you are not taxed twice on your income, but the amount must still be disclosed in Canada.
- Unreported Foreign Property
- Canadians are required to report any foreign assets they own that are valued at more than $100,000. This does not apply to personal-use property (such as a personal vacation home). However, if you rent out a property you own in the United States, these details must be disclosed on your taxes.
How to Solve CRA Tax Problems on United States Real Estate
If you have not properly reported real estate holdings or transactions, there is a very good chance that the agency is looking for this information and it is usually only a matter of time before the agency finds it. For instance, in addition to searching publicly-held real estate information on US properties, the CRA has also attempted to find information on real estate holdings by seeking information from registry offices, condo developers, and other sources. The CRA is a very powerful agency and it will usually do whatever is necessary to collect taxes that are owed.
One solution that may be helpful in these situations is the CRA’s Voluntary Disclosure Program (VDP). This program is designed as a way for taxpayers to correct prior year returns before they are contacted by the CRA. However, to be eligible for the program, certain circumstances must apply:
- The disclosure must be voluntary, therefore it must be made before the CRA contacts you about your tax situation
- The disclosure must be complete, so you must give the CRA details on all the missing or incorrect information for all applicable tax years
- A penalty must apply in your situation
- The disclosure must be more than a year old
- The VDP application must include payment of the estimated taxes owing
The VDP process seems straightforward at first, but it can be quite lengthy and complicated in reality. In addition, changes made to the VDP in March 2018 resulted in the creation of two program tracks, the general program, and the limited program, and this complicated the process significantly.
If you are accepted into the general program, you will not be charged penalties and will not be referred for criminal prosecution related to the information being disclosed. You may also be eligible to receive partial interest relief.
However, if the agency believes you did not properly disclose all information in an intentional attempt to avoid tax obligations, you could be placed into the limited program. In this program, you will not be referred for criminal prosecution with respect to the disclosure and will not be charged gross negligence penalties. However, you will still be charged with penalties and interest as applicable.
It is important to work with a tax professional when applying to the Voluntary Disclosure Program. If you failed to properly disclose United States real estate holdings, earnings, or transactions, our experienced team can help. Please contact us today.
Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our ex-CRA professionals to:
- 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue
- 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute processes
- 3| Offer a complete solution to tax problems, including ex-CRA professionals, lawyers, and experienced accountants