Be Careful if you are flipping houses and claiming principal residence exemptions The CRA in recent years has been cracking down on taxpayers who, in its view, are inappropriately claiming the principal residence exemption. In a recent case involved a Vancouver taxpayer who purchased, demolished, constructed and then sold three homes in a six-year period. The CRA successfully reassessed the taxpayer for his 2006, 2008 and 2010 taxation years to include unreported net business income, unreported GST and penalties under both the Income Tax Act and the Excise Tax Act in respect of the sale of these properties. The CRA has identified the following key areas of concern: 1) Reported income does not support lifestyle. The five areas of “compliance risk” that have been identified by CRA are: The acquisition of expensive assets, such as a high-end home, without an obvious income source, can be an indicator of potential unreported income income on income tax returns. 2) Property flipping. 3) Unreported capital gains tax on the sale of property by residents and non-residents 4) Unreported worldwide income 5) Unreported GST/HST on the sale of a new or substantially-renovated home 6) Rebates – Tax rebates available to the builder or purchaser 7) Cryptocurrency Trading If you are a professional contractor or renovator, developer, a speculator or investor, or an individual renovator the CRA is paying close attention to your property sales. Please contact KLCA for guidance.