July Poll Results: It’s (Almost) Unanimous!Posted: August 08, 2017 VIA: Knowledge Bureau
Posted in: Strategic Thinking
In July, we asked you to vote on the following question: Does CRA do enough to ensure Canadians understand income tax and GST/HST implications of flipping personal residences? (For example, taxable dispositions require repayment of new housing rebates.)
The result was practically unanimous, with a whopping 99% saying that CRA can do a much better job of educating Canadians in this area—advisors and their clients alike. Not surprisingly, none of the comments offered were in praise of CRA’s communication efforts on this front!
Pat points out that not only does the CRA provide inadequate information on this topic, but the answers they do give are confusing: Considering if you call CRA you get conflicting “opinions,” it is difficult for the average person to form an accurate understanding of the rules.
Susan agrees and elaborates: I have called on this exact topic, on several occasions, and have received numerous different explanations by different people. Build, re-build, partial renovation, complete renovation, there are different rulings for what to do on “flipping.”
Martin doesn’t go as far as saying that the CRA is being deliberately obtuse, but he does recommend due diligence before reporting: CRA does not proactively attempt to inform people about tax implications. If an owner lives in the property and claims it is his/her principal residence, they may likely assume a sale is tax free. But if that person has not lived in that personal residence for at least two years, the sale is not considered to be of a principal residence and does not qualify for principal residence tax exemption. Unless the seller is aware of the rules from another source, or has checked the CRA website to see if there are rules regarding short ownership periods or multiple sales in a relatively few years, they would likely not be aware of the rules. CRA does not advertise what makes something taxable, but will take the opportunity to tax you if you don’t know. Ignorance of the tax laws is not considered a defense. CRA is tightening tax rules continuously to track down every bit of tax revenue they can. It is mandatory due diligence to check with CRA, or a good income tax expert, before embarking on any new enterprise, such as the business of house flipping, even if you live in the property.
Ken believes tax professionals are more necessary than ever to help taxpayers understand the rules and plan and report accordingly: CRA has been weaning itself from the general public. Their rules and regulations are being treated as theirs, and not to be shared, unless someone has paid a professional to ask whether a transaction is taxable…The rules now for the general public selling their “personal residence” have not really changed. [However,] the rules for selling your personal residence, which has been claimed in part for business purposes, or for any other use, have changed drastically.
Lastly, an excerpt from Joan’s lengthy and eloquent response to the question: If it takes someone with a lifetime of tax returns and accounting experience several weeks/attempts to find a “reasonable” response from CRA, I can’t even imagine any of my clients having the time, patience or inclination to find answers to their questions…So, if the accounting geek can’t communicate effectively with a government employee, how the heck is the grade school teacher, the retired insurance salesperson or the Italian-born construction worker supposed to understand any of this taxing garble? While there is no “simple” version of the [Income Tax Act], I really cannot imagine anyone in the general public ever having sufficient information at hand to complete even a rudimentary tax return…not anymore.
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