Non-compliance in the

real estate sector

continues to be an area of concern for the

Canada Revenue Agency

. In late November 2025, the CRA released the results of

the agency’s real estate audit activities

for the 2024-2025 fiscal year, which show that a total of 14,854 audits were completed between April 2024 and March 2025, up 2,100 from the prior year. These audits led to a total of $849 million in taxes and penalties, up from $648.5 million the prior year.

The CRA attributes these results to the use of data analytics, better access to third-party data, and an expanded audit coverage. It uses an “escalating approach to address non-compliance with the appropriate level of intervention as early as possible.” This approach includes targeted communications, education and outreach, examinations, audits and, if warranted, penalties or criminal investigations.

The CRA continues to focus on 10 significant areas of non-compliance.

1. Reported income does not support lifestyle

The CRA will occasionally review whether the income reported on an individual’s tax return is sufficient to support his or her lifestyle, including the cost and maintenance of real estate. Specifically, buying expensive assets, such as a high-end home, without an obvious source of reported income, could be an indicator of potential unreported income on an individual’s tax returns.

2. Property flipping

Taxpayers who buy and resell homes

within a short period for profit are often engaged in

property flipping

. The CRA uses third-party data, such as land title and registry data and

municipal property tax rolls

, to identify and analyze these transactions, and has determined that some property flips are either not reported or reported incorrectly. The profits from flipping real estate are generally fully taxable as business income, but some taxpayers may choose to report it as a capital gain (which is only 50 per cent taxable), or not report it at all.

The CRA has identified three main categories of individuals engaged in property flipping. The first category is professional contractors or renovators who buy homes with the intention of renovating and then selling them for a profit. The second category is speculators or intermediary investors, who often purchase

pre-construction properties

with the goal of reselling them rather than living in them. They may choose to assign the rights in the purchase contract to another buyer

before taking ownership

, with the same property often reassigned multiple times by different purchasers before the sale closes. Finally, the third category of flippers is individual renovators, who buy a home, renovate it, live in it for a short period of time, and then sell it for profit, claiming the principal residence exemption.

3. Unreported capital gains on the sale of property

If you make a profit on the sale of real estate, this capital gain

must be reported

on Schedule 3, Capital Gains of the personal tax return, whether that gain is taxable or exempt (due to the principal residence exemption).

4. Unreported capital gains tax on property sold by non-resident

A non-resident of Canada who owns Canadian real estate is required to report and pay tax on any taxable capital gain when selling it and cannot claim the principal residence exemption.

It is the

buyer’s responsibility to know

whether the seller is a Canadian resident or a non-resident.In most real estate transactions, the residency status of the seller is confirmed in the agreement of purchase and sale, and the notary or real estate lawyer who has the responsibility to complete the legal documents will reconfirm the seller’s residency status on closing.

5. Unreported worldwide income

Canadian residents are taxable on their worldwide income. While an individual’s residency status for tax purposes is determined based on a review of all the facts, owning a home in Canada will generally be a sign of a significant tie with Canada.

6. Unreported GST/HST on the sale of a new or substantially-renovated home

In most cases, the builder of a new or substantially-renovated home must collect GST/HST when that home is sold. If a builder leases or rents out a new or substantially-renovated home, they are deemed to have sold the home to themselves, and GST/HST is payable immediately on the home’s fair market value.

7. Rebates available to the builder or purchaser

If you buy or build a new home, or significantly renovate an existing home, you may be entitled to a GST/HST rebate if you either live in it as your primary place of residence (

New Housing Rebate

) or you lease or rent it (

New Residential Rental Property Rebate

). But, if your intention is to flip the property, you’re generally ineligible for a rebate and you must charge GST/HST on the sale of the property.

8. Land developers

Developers acquire vacant land or existing real estate to be demolished and sell the developed land or parcels to others. Land development generally has significant income tax and GST/HST implications.

9. Principal residence exemption

All sales of real estate in Canada, including the sale of a principal residence (since 2016) must be reported to the CRA, even if there is no capital gain or the entire gain is exempt. To designate a property as your principal residence, you need to complete

Form T2091

(IND), Designation of a Property as a Principal Residence, and report the gain on Schedule 3 or the T1 personal tax return. The CRA will only allow the principal residence exemption if the disposition, and the appropriate designation, was reported on your return.

10. Realtors

Finally, realtors who buy and sell properties for others for a living are included in the CRA’s risk-assessed populations, due to the high level of transactions inherent in a group whose main source of revenue comes from the sale of real estate.

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Jamie Golombek,
FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto.
Jamie.Golombek@cibc.com

.

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