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Revenue Minister Diane Lebouthillier speaks during in the House of Commons on Parliament Hill in Ottawa on Jan. 28, 2016.Chris Wattie/Reuters

The Canada Revenue Agency's crackdown on tax fraud in the overheated real estate markets of Ontario and British Columbia is bearing fruit, with auditors recovering $240-million in unpaid taxes and $12.5-million in additional penalties over the past 18 months, new figures show.

The money is being recovered as auditors focus on several issues identified in a series of stories in The Globe and Mail, including property flipping, efforts to hide capital gains and avoid paying sales taxes, and false ownership statements.

Still, the new figures show the CRA has a lot of catching up to do in British Columbia, where the federal agency doubled its auditing effort last year in response to widespread concerns over fraud and rising real estate prices.

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The numbers show the CRA audited nearly six times as many files and recovered seven times more money in Ontario than in British Columbia between April, 2015, and September, 2016. By contrast, Ontario's population is only three times higher than British Columbia's.

The CRA added it was in the midst of a special review of 500 large real estate transactions in B.C. that is designed to "uncover any tax issues that may not have already been identified."

"We are making a clear effort in British Columbia and our goal is to recover as much money [as in Ontario], if not more," Revenue Minister Diane Lebouthillier said in an interview.

The CRA's auditing efforts follow growing concerns over an affordability crisis in Vancouver and Toronto. The Globe has reported on a number of cases in which foreign-born owners declared low incomes despite moving millions of dollars through relatives into Canada, and revealed concerns that poor reporting by real estate agents has made the industry vulnerable to money laundering.

As part of its work in the real estate market, the CRA has started to publish new data on its website to show how many files it has opened and how much money it has recovered.

Over the past 18 months, the CRA looked into 13,403 files in Ontario (mostly in the Greater Toronto Area), recovering $210-million. During the same period, the CRA audited 2,366 files in B.C., for a total recovery of $30-million.

When the CRA determines that a taxpayer knowingly made a false statement on a return, it can impose a penalty that is equal to 50 per cent of the additional tax that is payable. In both Ontario and B.C., the CRA applied $12.5-million in penalties in 663 cases over the 18-month period, for an average of $18,850 per case.

In the biggest case, the federal tax-collection agency imposed a penalty of $2.5-million against a single taxpayer, meaning the individual had hidden nearly $5-million in payable taxes on his or her return.

As they look into real estate deals, CRA auditors are focusing their efforts on the following five issues:

  • The “source of funds” to buy or maintain and renovate a property, to see whether the owner is involved in tax evasion or illegal activities, or helping to shield the identity of a wealthy buyer;
  • “Property flipping” by real estate agents, renovators and speculators, to ensure that profits from real estate deals are properly reported to the CRA;
  • “Unreported GST/HST” on the sale of new or substantially renovated properties, in cases where houses are not used as a primary place of residence;
  • “Unreported capital gains” on secondary residences or houses sold by non-residents in Canada;
  • “Unreported worldwide income” by residents of Canada who have to report their worldwide income to the CRA.

"What is important for us is to recover the money that is owed and reinvest it in our communities. We are trying to protect all Canadians and ensure that middle-class Canadians can have access to home ownership," Ms. Lebouthillier said.

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