VANCOUVER—After going after tax evaders in the overheated real-estate markets of British Columbia and Ontario, Canada Revenue Agency have identified more than $1 billion in unpaid taxes.

The agency identified $604.5 million from Ontario and $422.6 million from British Columbia in the last four years for a total of $1.027 billion.

At a time when a house is financially out of reach for most residents of Metro Vancouver and the Greater Toronto Area, the agency said in a news release Thursday it is imperative that tax rules are followed since tax evasion combined with money laundering can push up housing prices.

CRA auditors reviewed more than 41,000 returns from B.C. and Ontario filed between 2015 and 2019, which resulted in more than $100 million in assessed penalties for those who knowingly made false statements on tax returns.

The majority of audited files — 34,314 — were from Ontario, with 64 per cent of the $604.5 million coming from audits on GST/HST rebates on the sale of new homes or residential rental properties.

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In B.C., after auditing 7,400 files, 63 per cent of $422.6 million in recovered money came from those who under-reported income tax.

The CRA audits collected $169 million in 2015-2016 and $161 million in 2016-2017, but that jumped to $263 million in 2017-2018 and $434 million in 2018-2019.

Richard Kurland, an immigration lawyer based in Vancouver, said the 65 per cent increase in unpaid taxes identified in the past year is a direct result of improved data collection on B.C. real estate transactions, which the province now shares with CRA.

The two provinces are home to the most heated real estate markets in Canada, Vancouver and Toronto. The federal tax authority has been taking a closer look at real estate in the two provinces since 2015, and has identified the sector as high risk for tax evasion.

The CRA uses a number of risk-assessment tools to flag potential tax cheats, but one of the biggest red flags comes from people whose reported income does not match their lifestyle, particularly if they have low income and a high-end home.

The agency keeps an eye on property flippers, too, whether they are individuals, contractors or middlemen like speculators. It is not illegal to flip homes, but those who renovate and sell at a higher price are supposed to report any profit as capital gains or business income.

The agency also looked for unreported GST, unreported capital gains and unreported worldwide income.

The $1 billion that was identified came from audits in three areas: unreported income tax, unpaid GST or HST on new home construction; and the GST/HST rebate available to new home buyers if it is their primary residence or a relative’s primary place of residence.

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Real estate prices in Metro Vancouver soared to historic highs through 2015 and peaked in 2016, but the market started to slow after the provincial government introduced a foreign buyers tax in the summer of 2016.

Additional government measures, including a federal mortgage stress test, a provincial speculation tax, Vancouver’s empty homes tax and increased property tax on homes worth over $3 million, combined to dramatically slow the market starting in 2018. Sales activity is now very sluggish and prices have been declining in all areas of the market, although a house is still out of reach for many residents.

In February, the B.C. government created a new registry to require condo developers to record condo pre-sales in an attempt to prevent tax evasion. The CRA had gone to court to compel several developers to hand over information about the purchasers of condo pre-sales because the agency had found some people who were reselling the pre-sales to be in “non-compliance” with tax law.

Even though sales have slowed considerably in Vancouver, the CRA will continue to keep an eye on the real estate sector. In the 2019 federal budget, the government allocated $10 million to create a real estate task force initially focused on Vancouver and Toronto and $50 million over five years to continue to catch tax dodgers.

Correction — May 31, 2019: This story has been edited to clarify that the Canada Revenue Agency has identified, but not necessarily collected, more than $1 billion in unpaid taxes in Ontario and British Columbia real estate activity.

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