GST/HST Audits on Property Sales
The Canada Revenue Agency (“CRA”) has been reviewing property purchases and sales for years. More recently, they have started GST/HST audits which assess taxpayers as home builders in the course of commercial activity. They claim taxpayers are builders and not subject to a exception from having to charge GST/HST on the eventual sale of the home. They do this from a GST/HST perspective rather than income tax because GST/HST is collectible even if the taxpayer disputes the audit assessment.
GST/HST Audits on Property Sales – The CRA Assessed me as "Builder"
For the CRA to claim you should have charged GST/HST on the sale of a property, they must first claim that you are a builder as per section 123 of the Excise Tax Act (R.S.C., 1985, c. E-15) (“ETA”).
The definition for builder is broad, and it can be difficult to fight. However, it is certainly possible. If you are able to prove you are not a builder, the CRA will not issue you a GST/HST assessment.
GST/HST Audits on Property Sales - What to Do?
If the CRA deems you to be a builder, they will claim that you should have self-assessed GST/HST.
The ETA provides an exception under subsection 191(5) if you are able to prove that you built a home and occupied it as your primary residence before selling it. The exception states in this situation the taxpayer does not have to charge GST/HST. There are very specific rules that must be met in order to qualify.
In many cases, taxpayers build a home and then sell it because of life events and not to make a profit. CRA will have to be convinced that is the case. In many circumstances CRA auditors will disregard the evidence you submit. We hear from many frustrated taxpayers who are mistaken that the CRA audit process is fair versus incentivized.
GST/HST Audits on Property Sales – Input Tax Credits
If you are unable to prove that you occupied the home as your primary residence, there are other ways to try and lower the potential assessment.
Any GST/HST that was paid for the construction, or sale of the property may be used as a credit against the amount you could owe.
So, if you paid $100,000 in GST/HST to construct and sell the property, this $100,000 may be used to offset the amount of money the CRA asks you to pay to them.
Conclusion
GST/HST Property Audits have been on the rise. The CRA seems to be auditing everyone, and anyone who builds a home and sells it within a few years. Here at SpenceDrake Tax Law we have the experience, and expertise to assist. We have helped many taxpayers fight these audits and we can help you too.
Your first response to the questionnaire is important. It lays the foundation for your entire argument. Be sure to consult with a Tax Lawyer before you respond so that you put yourself in the best position to succeed at audit or appeal.
Contact us if you require assistance with your tax matter.
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Disclaimer
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